A limited liability partnership, or LLP, is a business structure that allows the individuals in the partnership, called partners, to be free from the liabilities and debts of the other partners. In addition, the partners are shielded from certain liabilities and debts of the partnership itself.
One of the main advantages of forming a partnership is that legal action will be brought against the partnership as a whole instead of personally against one single partner. In an LLP, no one partner will be held personally liable.
LLPs differ from general partnerships in this way because, in general partnerships, all of the partners are liable for the debts and obligations of the partnership. LLPs do, however, share some similarities with general partnerships.
In both general partnerships and LLPs, all of the partners can actively participate in the management of the business. In addition, all of the profits and losses from the business are passed through to the partners in accordance with the partnership agreement.
In general, LLPs are usually reserved for professionals, for example, accountants and lawyers. Individual partners are able to avoid liability for the negligence or misconduct of the other partners.
In certain states, such as California, for example, only individuals who are licensed to practice architecture, law, or public accounting are permitted to structure their business as an LLP. In the State of Nebraska, however, any business is permitted to register as an LLP.
The process of an LLP will vary by state. The Uniform Partnership Act governs the creation and management of LLPs in the State of Nebraska.
Registration of limited liability partnerships in the state is done by the Nebraska Secretary of State.
What Are the Requirements for a Limited Liability Partnership in Nebraska?
Unlike in some states, all business entities are permitted to become LLPs in Nebraska. However, the LLP must have at least two partners.
This means that a sole proprietor cannot form an LLP. If the partnership operates under an assumed name, or something other than the surnames of the partners, the business name must be registered with the state.
In addition, the LLP must designate its status by placing the letters “LLP” after its name. If the principal office of the LLP is outside of Nebraska, it must designate a registered agent for the LLP.
A registered agent is an individual who is authorized to accept important documents, for example, the paperwork that initiates a lawsuit, for the business. If the LLP needs assistance selecting an individual to serve as its registered agent, a business lawyer can help.
If an LLP is a law firm, it must file a Certificate of Authority, which is issued by the Nebraska Supreme Court. In order to obtain a Certificate of Authority, the LLP must send a written request to the Clerk of the Nebraska Supreme Court and pay a filing fee.
What Paperwork Do I Need to Form a Limited Liability Partnership?
To create a limited liability partnership, the LLP has to file a Statement of Qualification as a Limited Liability Partnership with the Nebraska Secretary of State. This form may be submitted either in person or by mail.
The LLP must provide certain information on their Statement of Qualification, including:
- The name of the partnership;
- The principal business address;
- The registered agent’s name and address, if needed;
- The effective filing date, which is optional to include; and
- The signatures of at least two partners.
As noted above, there may be additional paperwork if the business operates under an assumed name. In addition to filing these required documents, the LLP should consider drafting a partnership agreement.
For example, the partnership agreement may outline the procedures that will be used when:
Having a written partnership agreement can help to prevent long-lasting litigation if a dispute arises. The LLP can also purchase liability insurance to provide protections in the event that a lawsuit is filed against it.
What Are the Advantages and Disadvantages of Forming an LLP?
There are numerous benefits that are associated with forming limited liability partnerships, including, but not limited to:
- Limited liability: In an LLP, the limited partners are all protected from debts and obligations of the business;
- In addition, every partner can exercise some degree of management control of the LLP;
- Tax benefits: The profits and losses in an LLP flow directly through the LLP to the partners. Once again, this is typically controlled by the partnership agreement;
- The partners are then taxed on their personal income tax returns and share the profits and losses. This means that they are not held to double taxation as corporations are;
- Flexibility: Limited liability partnerships offer partners flexibility in terms of ownership and involvement in the business. Partners have the right and control to decide how they will contribute to business operations and management;
- In addition, partners can divide the business duties based on the experience of each partner.
There are also many disadvantages that are associated with forming an LLP, including, but not limited to:
- Death of a partner: LLPs are typically automatically dissolved upon the death of a partner in the LLP;
- This is true even if the other partners do not wish to dissolve the LLP and would rather continue business operations;
- Lack of consultation or unanimous agreement: In an LLP, the partners are not required to consult with one another before making business decisions;
- It is important to have a partnership agreement before the LLP is formed that outlines what each partner can and cannot do in the LLP;
- No IPO: Unlike a corporation, LLPs cannot go public and make an initial public offering to raise capital;
- The partners will have to provide the funds necessary to run the business and begin the business initially.
What Benefits Does Nebraska Give to a Limited Liability Partnership?
In Nebraska, LLPs have specific benefits. A Nebraska LLP does not have to pay income taxes.
Instead, the income passes through to its partners, who are required to report this income to the IRS and pay taxes. A partner may not be held personally liable for the LLP’s debts or a partner’s negligence and misconduct.
In other words, the personal assets of the partners cannot be used to collect the partnership’s debts unless the partner:
- Was negligent;
- Engaged in misconduct;
- Personally guaranteed payment.
What Disadvantages Does Nebraska Give to a Limited Liability Partnership?
In Nebraska, partners in an LLP are not protected from all business liabilities. A partner may still personally be held liable under the conditions noted above.
If partners form an LLP, they should consider purchasing liability insurance to help offset these risks. If an individual is concerned about liability, they should consider creating a limited liability company (LLC) or an S corporation instead.
These types of business entities can offer the owners additional protections. There are, however, different rules and procedures that apply to Nebraska LLCs and corporations.
A business lawyer can help an individual determine which business structure best fits their needs.
Should I Hire a Lawyer?
Although completing a form to form a limited liability partnership may be a simple process, much more goes into structuring an LLP. A Nebraska corporate lawyer is best equipped to help you complete the formation of your LLP.
Your lawyer can help you create a legally binding partnership agreement, evaluate liability insurance policies, and complete any ongoing reporting and legal obligations. Your lawyer can help you follow the correct procedures and protect your financial interests.
