If you are going into business with another person, there are important legal and economic issues to consider before choosing a business entity structure for your partnership.
There are various benefits to setting up a business as a limited liability partnership (LLP), the most important being personal liability protection. An LLP provides the partners with more protection in terms of personal liability, as they cannot lose more than they have invested in the company if the company runs into financial difficulties or faces lawsuits.
If you are thinking about setting up an LLP or if you are looking for advice on the best entity structure for your partnership, call us today to arrange a no-cost, no-obligation consultation with an experienced Wyoming business formation attorney.
What is a Partnership?
A partnership is formed when two or more individuals decide to carry on a business together to make a profit. A partnership is essentially a sole proprietorship multiplied by the number of proprietors. And Like a sole proprietorship, each partner has unlimited personal liability for the debts and obligations of the business.
Partnerships are often governed by a partnership agreement that outlines rights of ownership and the duties and responsibilities of its partners. Many small retail and service businesses, like shops and restaurants, are operated as partnerships.
Similar to a sole proprietorship, a partnership does not have a separate legal identity that is distinguishable from its owners. Because of this, the partnership’s profits and losses flow through to its owners, where it is reported on their personal tax returns and taxed at a lower rate. This is referred to as pass-through taxation.
What is Limited Liability Partnership (LLP)?
A limited liability partnership (LLP) is a type of partnership that enables all the partners to enjoy limited personal liability for the business’s debts and liabilities. This differs from a limited partnership, where there must be at least one partner with unlimited personal liability.
An LLP is a very attractive way for individuals to do business together because the partners cannot lose more than their initial investment in the partnership if it falls into financial difficulty or faces lawsuits.
An LLP also offers a large degree of flexibility, especially when it comes to the business's internal structure, allowing more partners to be involved in the day-to-day operation of the business.
What’s more, LLPs enables their owners to benefit from pass-through taxation. This can potentially mean lower taxes, since the business's profits and losses flow through to its owners' personal tax returns, where it is taxed at the personal income tax rate.
In some jurisdictions, only certain professionals can form an LLP. These are most often professionals like lawyers, doctors, and accountants, who do business together and organize into partnerships to be protected from professional liability.
In such partnerships, when a partner makes an error, or perhaps defrauds a client, they are fully personally liable for the damages caused by their action. The liability of the other partners, however, is limited to the amount of money they have invested in the partnership.
Forming an LLP in Wyoming
There are some significant advantages to forming a business in Wyoming, such as strong asset protection and privacy, fewer documents to file, and no business or personal taxes. This makes Wyoming one of the most popular states in the country for business formation.
Before registering your LLP with the Wyoming Secretary of State, you will need to perform a business entity search to confirm the availability of your chosen business name. If the name is available and you need more time to prepare your formation document, you may reserve it for 120 days for a fee of $50.
Once you have chosen a business name for your Wyoming LLP, you can go to the Secretary of State's website to download and complete a Registered Limited Liability Partnership Statement of Registration, which will require the following information:
- The Name of the of your LLP;
- The mailing address and principal office address of your LLP;
- The Name, address, daytime phone number, and email address of your registered agent;
- The type of business your LLP will be engaged in; and
- The name, business title, and signature of at least one partner.
Once the Statement of Registration has been completed, you must file it with the Wyoming Secretary of State, online or by mail, along with a check or money for $100.
Is a Wyoming LLP Right for You?
Whether a Wyoming LLP is right for you will depend on various factors, ranging from the nature of your business to your preference in terms of how management and liability will be allocated among its partners.
Seeking the advice of an experienced business formation attorney is, therefore, strongly recommended before deciding that an LLP, or any other entity structure, is right for your business.
For more information or expert advice regarding any other business formation issue, contact us to arrange a free consultation with an experienced Wyoming business formation attorney.