There are several different structures that may be used to create a business, including:
Limited liability partnerships, also referred to as LLPs, are a business structure that allows the individuals in the partnerships, called partners, to be free from the debts and liabilities of the other partners. In addition, the partners are shielded from certain liabilities and debts of the partnership itself.
One of the major advantages of forming partnerships is that actions are brought against the partnerships as a whole, instead of against any single partner personally. Because of this, a limited liability partnership is different from a general partnership.
In a general partnership, all of the partners are liable for the debts and obligations of the partnership. A limited liability partnership, however, does share some similarities with general partnerships.
With both limited liability and general partnerships, all partners may actively participate in the management of the businesses. In addition, all of the business losses and profits are passed through to the partners in accordance with the governing partnership agreements.
In general, a limited liability partnership is reserved for a professional, such as a lawyer or an accountant, so that the partners can avoid liability for the negligence or misconduct of the other partners.
For example, only individuals who are licensed to practice law, architecture, or public accounting may apply for limited liability partnerships in the following states:
- California;
- New York;
- Nevada; and
- Oregon.
In a limited liability partnership, the partners are only liable for the amount of money that they invested in the partnership. In the State of Indiana, a business may only be run as an LLP if it is registered with the Indiana Secretary of State.
What are the Advantages and Disadvantages of Forming an LLP?
Numerous benefits are associated with forming limited liability partnerships. These advantages may include, but are not limited to:
- Limited liability: Limited partners are all protected from the debts and obligations of an LLP. In addition,, every partner can exercise some degree of management control of the LLP;
- Tax benefits: The profits and losses of an LLP flow directly through the LLP to the partners. A partnership agreement typically controls this. The partners are then taxed on their personal income tax returns and share the profits and losses of the LLP. As such, they do not face double taxation as in a corporation; and
- Flexibility: Limited liability partnerships offer flexibility to the partners in terms of business ownership and their involvement. Each partner has the right to decide how they will contribute to business operation and management. In addition, partners can divide the business duties based on the experience of each partner.
There are also numerous disadvantages to forming an LLP, which include but are 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 structure, the partners do not need to consult with each other before making business decisions. This is why it is crucial to have a partnership agreement in place when the LLP is formed, as the agreement will outline what each partner can and cannot do related to the LLP; and
- No IPO: Unlike corporations, LLPs cannot go public and make an initial public offering to raise capital. This means that the partners will have to provide the funds necessary to start the business.
What are the Requirements for an LLP in Indiana?
A company must satisfy several requirements to form an LLP in Indiana. One of the most important requirements is for the LLP to file paperwork with the Officer of the Indiana Secretary of State.
The name of the Indiana LLP is required to include:
- Limited Liability Partnership;
- L.L.P.; or
- LLP.
In addition, the name of the LLP is required to be unique, for the most part, compared to other business names. An LLP must also choose a registered agent that is either an individual or a company that is registered with the Indiana Secretary of State.
This individual or company will receive any necessary official documents for the LLP. Another critical requirement for an LLP is that the company is required to have at least two partners.
What Paperwork Do I Need to Form an LLP in Indiana?
In Indiana, the paperwork required to form an LLP may be filed online or by mail. If an LLP is formed in Indiana, it is known as a domestic LLP.
A domestic LLP is required to file an Articles of Registration for a Limited Liability Partnership. A foreign LLP, or an LLP created in another state and wants to expand to Indiana, must fill out an Application for Registration for a Foreign Limited Liability Partnership.
Both of these forms require some of the same information, including:
- The name and address of the LLP;
- The name and address of the registered agent; and
- A statement of purpose that describes what type of business the LLP is planning to engage in.
Each of the forms is required to be signed by an agent of the LLP. Foreign LLPs must also disclose where and when they were formed on the Application for Registration for a Foreign Limited Liability Partnership.
What Benefits does Indiana Give to an LLP?
Indiana is one of the few states with a flat income tax rate. This rate is low compared to other states, at 3.3%. This is an excellent benefit for LLPs because the profits of an LLP are only taxed once as part of the partners’ personal income.
What Disadvantages does Indiana Give to an LLP?
In 2015, the Religious Freedom Restoration Act of 2015 was passed in Indiana. This act harmed the state’s businesses and the state’s economy.
This act resulted in the economy of the state capital, Indianapolis, losing approximately $60 million in revenue in 2016 alone. Many businesses have left the state, as a result of this act.
In addition, the act may cause issues for businesses that want to continue operating in the state as individuals may boycott Indiana-based businesses due to this law.
Should I Hire a Lawyer?
It may be difficult for an individual to establish an LLP on their own. It may be helpful to consult with an Indiana corporate lawyer in your area if you have any issues, questions, or concerns related to forming an LLP.
If you are forming an LLP in Indiana, your lawyer can advise you of the various legal requirements in your state. Your lawyer can assist you in accurately completing the paperwork to form your LLP.
Your attorney can assist you with drafting the partnership agreement that will govern your LLP. In addition, your lawyer can represent you if any legal issues arise related to the LLP. Also, if there are any changes to the law that might affect your business, a qualified attorney can provide you with updates regarding your legal rights.
