An LLP or a Limited Liability Partnership is a legal entity in the United States whereby the partnership structure allows for limited liabilities between all partners. LLP allows spreading the risks of the partners, who are, at the same time, leveraging their individual expertise. As this is a strategic division of labor and the liabilities are limited, partners can also benefit from economies of scale. In this article, we talk about the advantages of an LLP and, particularly, how to form a Delaware LLP, including the process and requirements.
Benefits of an LLP
- Partners can benefit financially from each member’s profession, experience, and expertise. Professionals like lawyers, accountants, wealth managers, and architects normally form an LLP to effectively delegate responsibilities and bring business to the partnership.
- Because the partners are most likely experienced and have connections and existing clients, the partnership can benefit from pooling and maximizing resources, like employees, technology, and office space, etc.
- Partners get protection from risks presented by a general partnership. This means that partners will not be held liable when the partnership is involved in any form of legal issue or litigation and even debts and bankruptcy. Because of this, the personal assets of individual partners are protected. However, please note that individual partners are liable for their personal wrongdoings.
- Partners can enjoy the flexibility that an LLP offers. Naturally, each individual partner has a unique role in the partnership as the duties are divided based on their field of expertise. In this case, partners can determine how they can mold their roles in operation management. Still, partners can choose whether to appoint a general managing partner or a committee pooled from existing partners, who can oversee the operations.
- The partnership can benefit from pass-through tax relief. The LLP passes its duties to individual partners who will then declare their earnings and losses on their personal income tax returns as self-employed individuals. When you form a Delaware LLP, you will benefit from the pass-through taxation. However, not all states permit the relief.
- The partnership has the option of corporate ownership. Partners can appoint two companies as ordinary members of the LLP. This can possibly bring more business or attract more clients.
- The partnership can let go of a partner as outlined in the partnership agreement. In the same way, it can accept new partners who can bring with them new clients upon the approval of existing members.
Like other legal entities, however, there are also drawbacks when you form an LLP. In Delaware, an LLP is required to have at least two members. In an LLP where there are only two partners, when one leaves, the partnership may be dissolved. Depending on the regulations of the jurisdiction, an LLP may be required to file annual reports. When you form an LLP in Delaware, you must also be ready with annual reporting.
Here’s how you can form a Delaware LLP: the process and requirements
- Upon the legal advice of lawyers, agents, or accountants who are familiar with Delaware laws, you may choose LLP as the business structure you will form in Delaware.
- Accomplish a partnership agreement and fill out a statement of qualification, which includes the following:
- The name of the partnership; (You may reserve the name of your partnership with the Delaware Division of Corporations at any time for up to 120 days for a fee of $75.00. Check entity name availability here.)
- The address of the registered office and the name and address of the registered agent for service of process required to be maintained by § 15-111 of this title;
- The number of partners of the partnership at the time of the effectiveness of the statement of qualification;
- A statement that the partnership elects to be a limited liability partnership; and
- The future effective date or time (which shall be a date or time certain) of the statement of qualification if it is not to be effective upon the filing of the statement of qualification.
- The next step to forming a Delaware LLP is to register the business with the Office of the Delaware Secretary of State. The necessary documents may be uploaded here or mailed to the state’s Division of Corporation.
- Get an employer identification number (EIN). For tax purposes, the state of Delaware requires EIN from companies even if they don’t have any employees. (Read more about the key Delaware tax policies here)
- You may proceed with the renewal, addition, or modification of any necessary business license.
All registered business entities in Delaware, whether formed as LLP, LLC or corporation, must pay a certain franchise tax. Here is the annual franchise tax for different business entities in the state of Delaware.
To seamlessly form an LLP in Delaware, one of your options is to partner with an incorporation agent. Bolder Launch assists individuals and businesses who are interested in entering the American market or forming their partnerships (and corporations) in various states, including Delaware and Florida.
To know more about how we can help you, fill out this form to get a free quotation of our services on forming a Delaware LLP.
This guide is part of Company Formation in our Launch Guide.