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How to Start a Limited Liability Partnership

written by: •edited by: Michele McDonough•updated: 4/22/2012

A limited liability partnership (LLP) affords licensed professionals the ability to work together within a common business entity while benefiting from limited liability protection.

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    What Exactly is an LLP?

    couple in consultation,shirishbendre A limited liability partnership (LLP) is a business entity that mixes some of the features of a general partnership with those of a corporation. As the name suggests, an LLP provides some or all of the partners (depending on the jurisdiction and circumstances) limited liability and thus protects their personal assets should the business become insolvent. It should be noted, however, that owners of an LLP are generally given less protection from the claims of the company's creditors, as compared to a Limited Liability Company (LLC) or a corporation.

    The tax structure of an LLP is similar to a general partnership in that all the income generated by the business "flows through" to the owners (i.e. it is not taxed at the business level like a corporation), and each partner records the money they received as earned income on their individual tax forms.

    At its inception, the establishment of the LLP provided a way for licensed professionals to work together under a common business entity while enjoying limited liability from the claims of the business's creditors. The LLP is thus an especially popular form of organization among lawyers, accountants, and architects. In some U.S. states, such as California, New York, Oregon, and Nevada, LLPs can only be formed for such professional situations.

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    Starting an LLP from Scratch

    In most states, the formation of an LLP as a newly established business is very similar to the creation of a general partnership. It should be noted, however, that the specific steps and requirements to start an LLP vary from state to state. Those seeking to create such an entity should make sure to find out what the requirements are in their particular state as well as the local jurisdiction(s) in which the business will be operating.

    Regardless of these differences, the first step for all involved partners for a new LLP should be the establishment some kind of partnership agreement. There is generally no requirement that this agreement be in writing, nor that it be filed with the state, yet it is good business practice to have one officially written and signed by all parties in order to avoid later conflicts.

    If the business will operate under a name that is different from the owner's name (i.e. an assumed name that does not include the surname of all of the partners), most states will require that an assumed name certificate be filed. This document informs the jurisdiction that the business is operating under an assumed name and indicates who the owners are. Usually, the assumed name certificate will be filed locally with the office of the county clerk in the county(s) where a business premise is either maintained or where business is conducted.

    The LLP should also obtain a Federal Employer Identification Number from the IRS. This can be conducted online or by filling out Form SS-4, Application for Employer Identification Number.

    Finally, the partners of the LLP should make sure to get all the necessary business permits and/or licenses for operation in their particular state. Again, this will vary across states and across industries so some research will be required.

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    How to Convert a General Partnership to an LLP

    Converting a general partnership to an LLP is fairly easy in many states. Once the general partnership has been established, the partners will generally be required to file a Limited Liability Partnership Registration form with the Secretary of State and pay a small fee. Many states even allow businesses to file for LLP registration online.