Partnerships are one of the most commonly used types of business entities. Unlike the partners in a general partnership, in a Utah limited liability partnership (LLP), the general partners manage the business and share completely in both its profits and its losses. A limited partner, on the other hand, shares in the profits of the business, but their losses are limited to the amount of their investment in the partnership.
Limited partners are usually not involved in the daily operations of the business. If they do become involved in management or day-to-day operations, they run the risk of being found to be general partners and might have to assume unlimited liability for business debts as a general partner.
The main goal of a limited partnership is to enable people to invest funds in a business without having to take an active role in managing the business and without risking more than the sum originally invested, while benefiting from the cooperation of others who have ability but insufficient funds.
The main distinction between a limited liability limited partnership and a limited partnership is to limit the vicarious liability of the general partners in the same fashion that registration as a limited liability partnership limits the liability of the general partners of a general partnership.
Professional service firms, such as law and accounting firms, often choose the LLP form or their businesses. In Utah, however, any business can register as an LLP.
Different states have different processes for forming a limited liability partnership. In Utah, the Uniform Partnership Act governs the formation and other official processes associated with LLPs. The Utah Department of Commerce, Division of Corporations and Commercial Code is responsible for the registration of limited liability partnerships.
What Are the Requirements for a Limited Liability Partnership in Utah?
Some states limit the type of business that can operate as an LLP, but in Utah any business can become an LLP. However, the LLP must have at least two partners; a sole proprietor obviously cannot form an LLP. If the partners perform professional services, such as medicine, law, or architecture, additional rules apply.
If a partnership operates under an assumed name, i.e., something other than the partners’ surnames, LLP must register its name with the state. Additionally, the business’s status must be designated by using “LLP” after its name.
And, an LLP must designate a registered agent. A registered agent is someone who is authorized to accept important documents, such as the paperwork associated with a lawsuit, for the business. In Utah, a business is not allowed to serve as its own registered agent. A business lawyer can help with the process of selecting a registered agent if necessary.
What Filings Do I Need to Form a Limited Liability Partnership?
To create a limited liability partnership, a person must file a Statement of Qualification with the Division of Corporations and Commercial Code. The Statement of Qualification can be filed online, in person, or by mail. If it is done online, the LLP can be registered within 24 hours.
If a person wants to register a LLP in-house, they can use the application for a Domestic LLP. The or if a person wishes to file a Foreign LLP, they can use the Foreign Registration Statement. It can take up to 7 business days to process these filings.
The following information must be provided on the Statement of Qualification:
- The name of the partnership,
- Its principal business address,
- Its registered agent’s name and address if a non-commercial agent,
- The names and addresses of the partners,
- The purpose of the LLP,
- The signature of an authorized partner, and
- Whether the LLP can be considered a female- or minority-owned business, if applicable.
Additional paperwork may be necessary, if the LLP plans to operate its business under an assumed name. A person can find out if a name that an LLP wants to use for an LLP is or is not available by doing a Business Name Availability Search through the Division of Corporations and Commercial Code. Or a person may contact that office to verify that a name an LLP wants to use is available.
A Business Registration Search can also be conducted to determine if other business entities have already registered that may have a name similar to the name that a new LLP wants to use.
It is important to keep in mind that although a name may appear to be available, nothing is final until the Division of Corporations and Commercial Code approves the business filing with the LLP’s name. So, the founding partners do not want to spend a lot of money spreading a name across marketing material before knowing for sure that their LLP can have a particular name.
What Are the Advantages of a Limited Liability Partnership in Utah?
Limited liability partnerships have specific benefits. First, an LLP, as a business, does not have to pay income tax on its income. Instead, an LLP’s income passes through to its partners. It is the partners who must report this income to the Internal Revenue Service (IRS) and pay any tax owed.
The main goal of the limited liability partnership form for doing business is to enable people to invest their money in a business without actively managing the business and without risking more than the amount of money originally contributed. At the same time, these investors obtain the benefit of the cooperation of others who have certain abilities but insufficient money.
Also, a limited partner may not be personally liable for either the LLP’s debts or their partners’ negligence and misconduct. In other words, a limited partner’s personal assets cannot be used to pay the partnership’s debts unless the debt relates to a partner’s own negligence, misconduct, or personally guaranteed loans.
What Are the Disadvantages of a Limited Liability Partnership in Utah?
Utah does not protect an LLP’s general partners from all business liabilities. And any partner may still be personally liable if they are guilty of negligence, misconduct, or personally guarantee a debt. If a person becomes a general partner in a limited liability partnership, they should consider purchasing liability insurance to help offset this risk.
A partner who is concerned about liability might want to consider creating a limited liability company (LLC) or S corporation instead. These business entities may offer owners additional protection. However, different rules and procedures apply to LLCs and corporations in Utah. A business lawyer can help decide which business structure is best for a particular purpose.
Should I Hire a Lawyer?
While completing a form is a simple process, a lot more goes into the structuring of a limited liability partnership. For example, you should create a legally binding partnership agreement, should evaluate liability insurance policies, and may have ongoing reporting and legal obligations.
A Utah corporate lawyer can help you follow the correct procedures and protect your financial interests.
