When starting a new business, one of the first decisions you will make is choosing the right business entity for your needs. Businesses in Florida can register as a sole proprietorship, partnership, limited liability company (LLC), or corporation.
This week, in part two of our series, we’ll be breaking down the 4 types of partnerships.
A partnership consists of two or more people co-operating a business. Each partner is responsible for contributing to the business, usually under the umbrella of money, labor, or assets. As a result, all partners should expect to share in the business’ profits and losses.
The four partnerships available in Florida are
- General Partnerships,
- Limited Partnership (LP),
- Florida Limited Liability Partnership (LLP), and
- Limited Liability Limited Partnership (LLLP)
In a General Partnership, each partner has an equal share and equal ownership in the business. As such, they will be responsible for an equal distribution of the business’ income as well as its liabilities. Each partner is also able to act as a legal representative of the business without the permission of the other partners. GPs are the simplest partnership entity, given that there are no formal statutory requirements for formation in Florida.
Florida Limited Partnership (LP)
A limited partnership is generally composed of at least one general partner and at least one limited partner. Limited partners can negotiate their level of personal liability and monetary contribution to the business. They are not inherently held responsible for the business’ liability or debts. Limited partners will still participate in profit distribution, but have less operations and decision-making authority.
Florida Limited Liability Partnership (LLP)
An LLP offers limited liability protection for all of its partners. It protects the assets of all partners from the debt and legal liability of the business.
Florida Limited Liability Limited Partnership (LLLP)
A Florida limited liability limited partnership combines the characteristics of both a LLP and LP. All of the partners will enjoy limited liability, but some partners may be general partners and others to be limited partners. This provides flexibility in terms of operations and management of the business.
One of the most important considerations when choosing a business entity is personal liability. Personal liability is how much your personal assets and debts are intertwined with the business and whether you will be on the hook for the business’ debt and legal liabilities.
In Florida, the Revised Uniform Limited Partnership Act (RULPA) provides an unqualified liability shield for limited partners. GPs, however, do not provide limited liability for their partners. This means the personal assets of partners are affected if the business goes into debt.
All 4 Partnership types are considered pass-through entities. As such, there is no tax on profits at the partnership level. Instead, profits passed onto the partners, are claimed as additional income on their personal tax returns. Pass-through entities also circumvent double taxation. Double taxation is when the business pays tax on corporate income and shareholders pay tax again on dividend payouts. Since there is no personal income tax in Florida, partners in a Florida general partnership will not pay any state-level income tax; however out of state partners will likely pay income tax in their home state.
Ownership, Management and Profits
The types of limited partners that a Florida limited partnership can consist of vary. A limited partner can be a person, corporation, association, or another partnership. You can also have several general partners and limited partners, creating an arrangement that makes the company easier to manage and attractive for investors.
Florida limited partnerships also offer flexibility when it comes to adding or removing partners and transferring ownership. Limited Partners can transfer their interest in the business without causing the partnership to dissolve and a general partner will preserve all of their rights in the business even after a limited partner leaves the company. This flexibility is especially appealing to future investors.
Perhaps the main advantage of a General Partnership is that they are economical to setup. In Florida, they are not technically required to register and there are no organizational registration formalities. Meanwhile, LPs and LLPs require more to get up and running, but they have fewer reporting requirements over the course of the business. An LLLP can have the most complicated registration procedure given the intricacies of the filing requirements.
How to Form a Florida Partnership
Depending the on the structure you choose, forming your Florida partnership can be a confusing process. Here are just some things to consider:
Choosing a Business Name
In Florida, a partnership’s name must meet two criteria, 1) it must not already be in use and 2) it must be unique enough to distiguish it as a name and not a general word. You should check availability of any names you are considering at the Florida Department of State, Division of Corporations website. Be aware that some partnerships are required to include business structure identifiers in their name, such as “Registered Limited Liability Partnership,” “Limited Liability Partnership, “LLP.”, “L.L.P.,” or “RLLP.”
Drafting a Certificate of Limited Partnership
When forming an LLLP or LP, you required to submit a certificate of a limited partnership to the Florida Department of State. This certificate must contain a number of details specific to your partnership so you should consult an attorney for assistance with this very important step.
Drafting a Partnership Agreement
Although a written partnership agreement is not required in Florida, it is worthwhile and recommended to have one. The information in this agreement will include partner names, contributions, profit/loss distribution, management authority and more. Having a complete agreement will save your partnership confusion down the line. RUPA sets out some guidelines for the items that can or should be included your partnership agreement.
It always a good idea to obtain assistance from a lawyer when choosing a business entity and registering it with the state given the varying requirements. If you would like to learn more about the formation of your business, please contact Capital Partners Law today for a free initial consultation.
What Should You Do Next?
If you are interested in learning more or speaking with an attorney at Capital Partners Law, there are plenty of ways to get in touch:
- Call us toll-free at (833) 7-CAPLAW.
- Find your nearest office and call to schedule a free consultation.
- Complete our New Client Request Form online. (No obligation – an attorney will review your information and contact you to discuss your needs).
- Schedule a Free Initial Phone Consultation online now.
- Schedule a Free Initial Video Consultation online now.
This article is for informational purposes only. It does not create an attorney-client relationship with any reader nor should it be construed as legal advice. If you need legal advice, please contact our firm.