A limited liability partnership (LLP) is a business structure that allows limited partners to operate without the risk of becoming personally liable for the debts and liabilities of any of the other partners. In addition, each partner is free from personal responsibility for certain debts and liabilities of the LLP in actions that are brought against the partnership itself.
Of course, under New York limited liability partnership law, even in an LLP, each partner remains personally responsible for their own professional practice and any liability that may come from it, e.g., liability for malpractice.
LLPs differ from general partnerships because, in general partnerships, all of the partners are liable for the debts and obligations of the partnership and the partners themselves.
It is important to note that in the State of New York, only licensed professionals are permitted to form LLPs. The licensed professionals who are permitted to form LLPs in the State of New York include the following:
- Doctors;
- Lawyers;
- Dentists;
- Therapists; and
- Design professionals, such as engineers and architects.
These are some of the licensed professionals who may be sued for professional malpractice if their performance causes injury or damage to their clients or patients, as the case may be.
What Are the Advantages of a Limited Liability Partnership?
Limited liability partnerships give the partners numerous advantages, including:
- Limited legal liability;
- Flexible roles for the partners;
- Easy setup under the laws of New York;
- Pass-through income taxation.
Limited legal liability is one of the biggest advantages of LLPs. The flexible management roles that the partners may play are also a major advantage.
LLPs differ from general partnerships because they do not expose the limited partners to unlimited legal liability. If an LLP is sued, in other words, a partner will not be personally liable for some potentially large financial obligation. This means that the personal assets of the limited partner are not available to pay the debts and obligations of the partnership.
So, for example, if a limited partner is found liable for malpractice and must pay a large award of compensatory damages, the partnership and other partners cannot be made to contribute to the payment of the award. Only the assets of the partner who is found to be liable may be reached to pay the obligation.
As for debts of the partnership as a business, the partners’ personal assets may not be used to pay an obligation of the partnership. Only the limited amount that they contributed to the LLP for its formation is potentially available. It is important to note that this shield on liability is not available if the lawsuit is based on the intentional acts of a partner.
Generally, to form LLPs, partners are required to complete a Certificate of Registration and file it with the New York Department of State in Albany, New York. There is a filing fee that must be paid as well. These registrations may require the partners to provide the following information:
- Their roles and responsibilities;
- Financial contributions;
- Debt distributions.
One other major benefit of a limited liability partnership is the pass-through tax advantages, which avoids double taxation. The income of the partnership is not subject to taxation. Rather, the income is distributed to the partners, and they report their income and pay their own personal income taxes. The LLP is not taxed as a business entity.
What Are the Requirements for an LLP in New York?
The requirements to form an LLP in New York include the following:
- Certification of Registration: The partners are required to file a Certification of Registration with the New York Department of State and pay a filing fee to form a New York Limited Liability Partnership;
- Naming the LLP: The partners are also required to name the LLP and ensure that the name of the LLP is not already in use and is unique from other business entities or trademarks in New York. The name of a New York LLP must include:
- the words “registered limited liability partnership”:
- “limited liability partnership”;
- the abbreviation “L.L.P.”; or
- the designation “RLLP” or “LLP” in uppercase or lowercase letters;
- Statutory Agent: Each New York LLP is required to have a statutory agent who will represent the LLP in any matter and who will accept legal papers on behalf of the LLP;
- Get an EIN: Since an LLP is an entity that is separate from the limited partners, it must have a federal Employer Identification Number from the Internal Revenue Service (IRS);
- Publication Requirement: Within 120 days after the Corporate Division approves the Certification of Registration for the LLP, a copy of the Certification of Registration must be published in the county of the LLP’s principal place of business;
- Partnership Agreement: In New York, a partnership agreement is not required when forming an LLP, but it is recommended. A partnership agreement states what each partner can and cannot do when making business decisions. It addresses other issues as well, such as dissolution of the partnership, what happens when a limited partner dies, and the like. While not legally required, it is best practice to have one. A local New York attorney can help an LLP draft a partnership agreement;
- Registering with the Department of Revenue/Get a Business License: Depending on the type of business that the LLP is, it would need to register with the Department of Revenue (DOR) if it is engaged in the sale of goods and collecting tax. The LLP should also get a business license;
- Pay the Annual Filing Fee: In New York, LLPs are required to pay an annual filing fee. The fee may range from $25 to $4,500 depending on the amount of income generated by the LLP; and
- File Five-year Statements: In New York, LLPs are required to file statements outlining their LLP every five years and within 60 days before its five-year anniversary.
What Paperwork Do I Need to Form a LLP?
The forms required to start a company as a limited partnership can be found on the New York Department of State website. The Certificate of Registration and the processing fee can be filed with the Department of State, Division of Corporations.
The complete list of professionals who are able to form LLPs can be found at this website of the New York Department of State: https://www.op.nysed.gov/professions-index. It is important to keep in mind that the limited partners of an LLP must be licensed professionals, so their professional licenses or certificates might be needed at some point.
What Benefits Does New York Give to a LLP?
As noted above, there are several reasons why a group of professionals may want to structure their business operation as an LLP, such as:
- Limited Liability: Similar to a corporation, an LLP protects the personal assets of its limited partners from the debts and legal liabilities of the business;
- Pass-through Taxation: An LLP is taxed as a pass-through entity and bypasses the double taxation that occurs with corporations. The LLP itself is not taxed;
- Instead, the partners are taxed according to their individual tax bracket when the LP’s profits are distributed among the limited partners;
- Biennial Report: LLPs are not required to file biennial reports in New York;
- Survivability: Unlike a general partnership, LLPs do not have to be reformed every time a partner dies.
What Disadvantages Are There for New York LLPs?
While limited liability, as well as the ability to avoid double taxation that is associated with the corporation, may seem attractive, there are a few drawbacks to structuring a company as an LLP, including:
- Filing and Fees: Unlike a general partnership or sole proprietorship, formation of an LLP does require filing a form and paying a filing fee, now about $200;
- Malpractice Insurance: Because limited partners are responsible for their own professional liability, each one must still have their own malpractice insurance. For some medical specialties in some states, premiums have been known to exceed $100,000 per year. The LLP itself may also need insurance.
It should be noted that one or more professionals may form a for-profit professional service limited liability company (PLLC) together to render the professional services that the professionals are licensed or certified to practice. A PLLC is formed by filing Articles of Organization. Again, for a listing of the professional services that are eligible to form a PLLC, a person may visit the website of the New York State Department of Education, Office of the Professions.
Can an LLP Sue Its Individual Partners?
It is possible that an LLP may have cause to sue one of its individual limited partners. For example, a limited partner might misappropriate partnership funds or other property of the partnership. If this is the case, the LLP might have reason to sue the partner. And it could do so.
If you have any questions about an LLP, PLLC, or LLC in New York, contact a local business lawyer for assistance.
Do I Need the Help of a Lawyer for My LLP Issue?
If you are looking to structure a business, possibly as a limited partnership, it is essential to consult with a New York corporate lawyer. Your lawyer can help you fulfill all of the legal requirements for running your business and representing you in court if a dispute arises.
Your lawyer can help you complete and file all of the required paperwork. Your lawyer can also assist you with drafting a partnership agreement that will best serve the unique needs of your partnership.
