How to Form an LLP in Texas?

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 How Do I Start an LLP in Texas?

The limited liability partnership (LLP) is one type of partnership that founding members may choose for their business enterprise. At least 2 owners—referred to as partners—must be involved in this type of organization. Texas allows partners in an LLP to be either general partners or limited partners, albeit at least one person must be a general partner.

In an LLP, each partner’s liability is limited to the amount they put into the business. In a limited partnership (LP), the business has both general and limited partners. Another option owners have is establishing an LLC. An LLC has more options in connection with its management, e.g., hiring a professional manager. In an LLP, management duties must be equally divided among the partners.

LLPs are a good fit for professions like law, accounting, medicine, and surgery. LLPs are only available to professionals in specific states. A local attorney in Texas would be able to review all the options a business person has and help select the right one.

Professionals may prefer LLPs over general partnerships, corporations, and LLCs. Professionals do not want to be held personally liable for the malpractice claims of their fellow partners.

An LLP shields each partner from financial obligations to the partnership resulting from claims of another partner’s professional negligence. Again, limited liability means that if the partnership should fail, creditors cannot pursue payment from a partner’s personal assets or income.

Who May Have a Limited Liability Partnership?

LLPs are typically used by professionals, such as accountants, engineers, and lawyers, to shield the partners from responsibility for the mistakes or wrongdoings of other partners. Income, losses, and gains are distributed among partners per the partnership agreement or their interests.

The cost of setting up an LLP in Texas is going to vary. The business would have to pay the cost of filing documents with the Secretary of State. Then, they may want to have an attorney draft a partnership agreement for the LLP. The LLP might have other start-up costs associated with finding space, staffing, buying supplies, and the like.

What Are the Requirements for a Texas LLP?

When a foreign LLP—a corporation incorporated in another jurisdiction—seeks to register in Texas to conduct business there, it is typically already an LLP under the laws of another state. The voting partners must agree that the partnership should register as an LLP in Texas.

The name of an LLP must end in either the term “limited liability partnership” or an abbreviation of the phrase, e.g., “LLP.”

As stated previously, an LLP must have a minimum of two partners, one of whom must be a general partner. Additionally, the Texas Secretary of State must receive registration documents from every partnership wishing to conduct business as an LLP in Texas.

If the LLP is a foreign LLP, it must also have a registered agent in Texas who agrees to accept any legal documents on the company’s behalf. A foreign LLP must designate the Texas Secretary of State as its registered agent if it does not have another agent.

An LLP must have liability insurance in an amount that is at least $100,000.00. The only time that an LLP partner could be liable in excess of his contribution to the LLP is when the obligations are attributable to that partner’s fault.

How Does a Limited Liability Partnership Provide Liability Protection?

In an LLP, it is one partner’s responsibility for another partner’s negligence or other liability that is limited. All of the other business debts and obligations of the LLP that are not the result of a partner’s negligence or wrongdoing are the standard obligations of the LLP itself.

Do Limited Partnerships and Limited Liability Partnerships Differ from One Another?

As in a general partnership, all partners in an LLP can participate in the management of the partnership. In a limited partnership (LP), one partner, known as the general partner (GP), has all the power and most of the liability, and the other partners have a financial stake but are not involved in management. With the shared management of an LLP, the liability is also shared, it is limited.

At least one owner is considered a “general” partner in LPs. A general partner manages the company’s affairs. LPs then have at least one “limited” partner who contributes capital to the company but does not participate in the management of the day-to-day operations.

Why Opt for an LLP?

Professionals frequently employ LLPs. The main goal is to protect each individual partner from liability for the professional malpractice of the other partners.

Professionals who have clients also prefer to operate as LLPs for other reasons. By pooling their resources, the partners reduce operating expenses while raising the LLP’s potential for expansion. Partners can share office space and staff. By cutting costs, the partners can make more money together than they might make if they operated a sole proprietorship.

In an LLP, the partners may hire junior partners who may be elevated to full partners at some time in the future. Junior partners receive compensation for their work but do not have an ownership interest in the partnership. The selected professionals are qualified to handle the partners’ tasks even though they are not given a partnership interest. In most partnerships, the partners have to make an investment in the firm in order to become a full partner.

One way that LLPs assist the partners in growing their business is through junior partners. Junior partners and staff members handle the day-to-day work, which frees up the partners to concentrate on generating new business. LLPs can add and remove partners. How this can be done should be spelled out in a partnership agreement, which the partners create at the time they start their partnership.

For some professionals, an LLP is a better choice than an LLC or other form of co-ownership because of its flexibility. LLPs are regarded as flow-through entities for taxation. The partners receive untaxed profits and are responsible for paying federal taxes on their share of profits. LLPs are better than corporations as corporations are taxed as an entity, and their shareholders are subject to additional payout taxes.

What Documents Do I Need to Create an LLP?

A partnership should submit the required documentation to the Secretary of State of Texas. Domestic LLPs must complete a Limited Liability Partnership Registration Form.

This form requires the following information:

  • The name of the LLP
  • Federal Employer Identification Number (FEIN) of the partnership or a statement that one has not yet been obtained
  • The number of general partners in the LLP
  • The location of the main office
  • A description of the business of the partnership
  • A declaration of the date on which the registration should take effect
  • The signature of a general partner if the partnership was originally an LP, the signatures of the partners holding the majority interest if the original partnership was a general partnership or the signature of a partner designated by those holding a majority interest.

In addition, a new LLP should get a business license.

A foreign LLP must complete an Application for Registration of a Foreign Limited Liability Partnership.

The foreign LLP must provide the following information:

  • The LLP’s legal name
  • Any other name that the LLP intends to use in Texas
  • The LLP’s FEIN or a notification indicating the LLP has not yet applied for a FEIN.
  • The state in which the LLP was originally established, if this applies
  • The date the LLP was first established
  • How many general partners are based in Texas
  • The country of origin and the date of creation
  • The location of the LLP’s main office
  • A description of the type of business the LLP is engaged in
  • The date that the LLP intends to commence business in Texas

Name and address of the registered agent for the LLP. Note that a domestic LLP does not need to have a registered agent
Signatures from the partners who hold the majority of the interests in the partnership or from a partner they have appointed.

What Advantages Does a Texas LLP Enjoy?

Profits from an LLP are passed through to the partners and taxed to them as personal income. Partners do not have to worry about paying income tax to the state of Texas for the amount of profits they receive from the LLP of which they are a member, because Texas does not have a personal income tax. However, partners would still be liable for federal taxes.

What Drawbacks Does an LLP Face in Texas?

All LLPs in Texas are required to submit an annual report. For each general partner present in Texas, the filing fee for such a report is $200. In Texas, LLPs must also pay a franchise tax, which varies according to the revenue the LLP generates.

Do I Need the Help of a Business Attorney for Setting Up an LLP?

There are many technicalities involved in setting up a Texas LLP. If you wish to do so or want to make modifications or adjustments to your existing LLP, you want to consult with a Texas corporate lawyer. LegalMatch.com can connect you to.

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