In Iowa, business owners have several legal structures to choose from when organizing their business operations. One business structure, a limited liability partnership (LLP), is popular because it offers limited liability to the business’s owners, who are known as “partners.” Like all forms of partnerships, an LLP is made up of at least two or more partners.
In an LLP, each partner is insulated from liability for either the obligations of the LLP or the actions of other partners involving the LLP. Of course, if a partner is directly responsible for incurring some kind of liability, then that partner can be individually liable.
In Iowa, four kinds of partnerships are legally recognized. They are the general partnership, the limited partnership (LP), the limited liability partnership (LLP) and the limited liability limited partnership. The simplest is the general partnership, which does not offer any liability protection to its partners, but does offer the optimal level of freedom in conducting business.
Every partner can be personally liable for the partnership’s debts and their personal assets, such as their home or accounts, can be seized to settle business debts. Income is not taxed to a general partnership, but is passed through to the partners who declare it as income and pay any taxes owed.
In Iowa, the limited partnership is popular with those who want to attract investors who serve only as the limited partners, which protects them from liability for the partnership’s debts and obligations. Limited partners are not allowed to manage the day-to-day operations of the partnership in order to maintain their personal liability protection. Limited partners are only liable for the amount of money they invest in the partnership; general partners are fully liable for the partnership’s debts. An Iowa limited partnership is taxed on the same pass-through basis as a general partnership.
In an Iowa limited liability partnership, all partners are protected from liability for other partners’ mistakes, errors, or fraud. This particular form of protection makes the LLP popular with professionals who run the risk of liability especially connected with malpractice lawsuits, e.g. doctors and lawyers. For example, if three lawyers start an LLP and one loses a costly lawsuit for malpractice, the other lawyers would not be personally liable to pay the costs or the judgment.
Also, while each limited partner is only liable to the extent of their investment, like a limited partner in an LP, they still have the right to participate in the management of the LLP, and can act for the partnership in business transactions. An LLP must register with the Iowa Secretary of State.
An LLLP has both general and limited partners, but both classes of partners are protected from each other’s debts, errors, and legal obligations. Like an LLP, the LLLP is popular with professionals who run a high risk of lawsuits, e.g. doctors and lawyers, but would also like to access outside investment.
As is true for an LLP, the partners are not liable for the others’ liabilities. Again as is true for LLPs. The general partners should manage day-to-operations, while the limited partners are more like silent investors. Lastly, the LLLP is taxed as a pass-through entity like a general partnership
What Are the Requirements for an LLP?
To form an LLP in Iowa, the partners need to meet certain requirements. First, the LLP’s name must include one of the following phrases: “Registered Limited Liability Partnership,” “RLLP”, “R.L.L.P.”, “L.L.P.”, “LLP”, or “Limited Liability Partnership” at the end. The LLP must designate a registered agent for service of process.
The registered agent must be either a person living in Iowa or a corporation registered to do business in the state. The agent must have a street address that can serve as the LLP’s registered office. Then certain paperwork needs to be filed with the Iowa Secretary of State.
What Documents Are Required to Form an LLP?
All of the paperwork that needs to be completed and filed can be found on the Iowa Secretary of State’s website. The paperwork can be submitted by either filling out a hard copy and mailing it in or by filling out a digital form online. A domestic LLP, which is an LLP that has never registered as an LLP outside of Iowa, needs to file a Statement of Qualification of Limited Liability Partnership.
If the LLP has already registered in another state and wants to start operating in Iowa, it is a foreign LLP. A foreign LLP needs to file a Statement of Foreign Qualification of Foreign Limited Liability Partnership.
The two forms ask for much of the same information, such as:
- The name of the LLP;
- The street address of the head office of the LLP;
- The street address of any office in Iowa that the LLP may possess if it varies from the address of the head office;
- The registered agent’s name;
- The address of the registered office where the registered agent may be found;
- The date and time when the LLP wants the registration to be effective if the LLP does not want it to be effective immediately.
In addition to this, a domestic LLP will also need to provide the original name of the partnership before it chooses to become an LLP and have the form signed by at least one of the partners. A Statement of Foreign Qualification of Foreign Limited Liability Partnership needs to be signed by at least two of the LLP’s partners, as well as a court-appointed fiduciary if they should be in control of the LLP.
Lastly, the partnership needs a bank account in the partnership’s name in order to preserve its liability protection. Commingling of personal and partnership assets could lead to trouble. The partnership needs a street address where it can receive mail and legal notices. It is best practice to have a partnership agreement that specifies how the partnership will operate, including such details as how partners can exit, how new partners can come in and how the partnership could be dissolved if the need for that comes to pass.
What Are the Advantages of an LLP in Iowa?
Unlike a number of other states, Iowa never requires an LLP to file an annual report or pay an additional fee beyond the initial filing fee. This means that once the initial paperwork has been filed, the partnership never has to worry about filing another document or paying another fee unless something changes with the LLP, such as its address or registered agent.
In addition, of course, there is the fact that all partners are protected from liability for other partners’ mistakes, errors, or fraud. And then there is the fact that each limited partner is only liable for to the extent of their investment like a limited partner in an LP, they but also has the right to participate in the management of the LLP, and can act for the partnership in business transactions
What Disadvantages of an LLP in Iowa?
An LLP’s profits are taxed as income to the partners. Iowa’s income tax rate can go as high as 8.98%, making it one of the highest income tax rates in the nation. This means that the partners of an Iowa LLP could end up paying a higher tax on the LLP’s profits in Iowa than they would pay if the LLP were registered in another state.
Should I Hire a Lawyer?
Before you set up an LLP, you should consult an Iowa corporate lawyer. Your lawyer can lay out all the possible business entities and help you determine which one is the best for your purposes.
Also, your lawyer can help you complete and submit the paperwork and meet the other requirements for formation and registration of your LLP. You may also want to have a partnership agreement and your business lawyer can help you draft that as well.
