A limited liability partnership (LLP) is a partnership that is structured in the same manner as a general partnership but with a key difference. All of the partners in an LLP benefit from some degree of protection from liability. The purpose of an LLP structure is to shield general partners from personal liability for the professional or other personal negligence of their partners.
Of course, each general partner remains liable for their own negligence, misconduct, or wrongful conduct. But even general partners cannot be liable for the professional or personal negligence of their partners.
In Idaho, LLPs are taxed in the same way as general partnerships, which means that the income of the partnership is passed through to the partners and taxed to them as personal income, although there is a recently adopted exception discussed below.
What Are the Requirements for an LLP?
Idaho law has a series of requirements that a business must meet to be considered an LLP. A partnership needs to have a name that includes “Limited Liability Partnership,” “LLP,” “L.L.P.,” “Registered Limited Liability Partnership,” “R.L.L.P.,” or “RLLP.” If the business seeking to be an LLP is a professional entity, such as a surgical practice or an architecture firm, it can choose to include either the word “professional” before the word “limited” or an additional letter ”p” before the first “l”.
The partnership must also designate a registered agent who can accept legal documents for the LLP. This can be an individual who lives in Idaho or a business that is registered in Idaho, but the agent must maintain a street address where they can be reached during normal business hours. Finally, an LLP must submit the requisite paperwork with the Idaho Secretary of State’s Office.
What Paperwork Do I Need to Form an LLP?
A business can be considered an LLP once it has submitted the necessary paperwork and it has been accepted as complete. The required form can be printed from the Idaho Secretary of State’s website and sent in duplicate to the Office of the Secretary of State. LLPs that register first in Idaho are domestic LLPs.
A domestic LLP needs to file a Statement of Qualification of Limited Liability Partnership. The form requires the prospective partnership to disclose the LLP’s name, a principal office address, a mailing address, and an address for an office in Idaho, if the principal office is not located in Idaho. Again, the name and address of the registered agent would be provided and lastly, it must be signed by all of the partners.
An LLP that is first registered in another state or country is a foreign partnership in Idaho. It should file a Foreign Registration Statement along with a certificate of good standing or existence from the state in which they registered initially. The partnership needs to indicate that it is seeking to register an LLP and provide its name, the name that the LLP plans to use in Idaho, the address for the LLP’s principal office, and a mailing address if it is different from the address of the principal office.
Also, a foreign LLP should identify the place in which it was originally formed and the addresses and names of both the registered agent and one of the general partners. Before mailing in the form, a partner should sign both copies.
Idaho law does not require that an LLP have a written partnership agreement, but it is probably a good thing to do. Experts note that most Idaho partnerships are partnerships between friends, family, or acquaintances. This makes it more important to specify how the partnership wants to operate, putting understandings in writing in order to keep the relationships within the partnership at the same level both before and after starting a business together.
Partners would want to include provisions in a written partnership agreement such as the following:
- Who is the general partner, how they should manage the business of the partnership, and what their authority is;
- How the profits will be shared among the partners, and whether any profits will be put into the business;
- How disputes will be resolved and whether any alternative dispute resolution methods will be deployed for internal and external disputes;
- Whether and how new partners will be added;
- How partners will exit and how they can be bought out, if they so choose;
- How the partnership can be dissolved;
- The length of time for which the partnership will exist;
- Decide how the time needed to run the partnership will be divided among the general partners, if there is more than one and how they will be compensated.
There may be other provisions that a group of partners wants to add to those listed above. It would probably be wise to consult an experienced business lawyer for advice. A lawyer may well be able to offer guidance as to what issues need to be addressed by a written partnership agreement.
What Are the Advantages of an LLP in Idaho?
In Idaho, LLPs do not have to pay an annual fee. While an LLP needs to file an annual report, there is no fee attached to the filing of the report. There are also several tax incentives for companies that do business in Idaho. A law passed in 2021 allows certain pass-through entities, such as LLPs, annually to elect and pay a tax of 6.5% on the pro-rata or distributive share of the entity’s partners.
The partners, shareholders, and members then receive a tax credit equal in amount to what was paid by the partnership. In this way, the tax burden on the partnership’s income is shifted to the partnership and off of the partners. Another tax incentive offered by Idaho to businesses including LLPs is the 2.5% real property improvement tax credit that can be up to $125,000 in any one year.
What Are the Disadvantages of an LLP in Idaho?
Idaho does require that LLPs file an annual report with the Idaho Secretary of State. The Secretary of State may terminate an LLPs registration. If the LLP does not submit its annual report on time, then the Secretary of State may terminate the LLP’s registration.
While a domestic LLP can reinstate its registration by submitting a simple Reinstatement Form, a foreign LLP would need to go through the entire process of re-registering with the Secretary of State.
Should I Hire a Business Lawyer?
Establishing an LLP in Idaho can require some expertise. In addition to registering and filing an annual report, an LLP would be well advised to have a written partnership agreement. You should consult with a corporate lawyer in Idaho to figure out how to avoid pitfalls that may arise, both with registration and with drafting a partnership agreement that meets the needs of your business.
