Limited Liability Partnerships

Limited Liability Partnerships

New Jersey’s partnership law has recognized limited liability partnerships (“LLPs”) for quite some time. However, as of December 2000, the partnership law was revised and the revision made LLPs an even more attractive alternative to the general partnership (“GP”) form of business. The following addresses frequently asked questions regarding GPs and LLPs.

 

What is a GP?
A general partnership (a.k.a. “partnership”) is an association of two or more persons who co-own and carry on a business for profit.

 

Is a filing of any kind necessary to create a GP?
No. The mere association of two or more persons to carry on the for-profit business creates the GP. However, as with all business structures, there are post-creation formalities associated with GPs.

 

What is an LLP?
An LLP is a partnership that has filed a Statement of Qualification with the appropriate state office.

 

Is a filing of a Statement of Qualification necessary to create an LLP?
Yes. A Statement of Qualification must be filed with the state to create an LLP.

 

Are there fees associated with creating and maintaining an LLP?
Yes. There is a one-time fee for filing a Statement of Qualification and, thereafter, there is an annual fee to maintain the existence of the LLP.

 

What is the chief advantage of an LLP?
The liability shield. In a GP, each and every partner is personally liable for all debts and obligations of the GP to the extent the GP’s assets are insufficient to satisfy the debts or obligations. An LLP shields its partners from personal liability for partnership debts and obligations incurred in the normal course of business.

 

What is the difference between an LLP and a limited partnership?
The availability of limited partnerships (“LPs”) pre-date modern LLPs. LPs are far more complex business structures than LLPs. LPs must have two classes of partners (i.e., limited and general). General partners possess full management control of the LP, but also face personal liability for the debts and obligations of the LP to the extent the LP’s assets are not sufficient to satisfy the debts or obligations. Normally, limited partners have little or no management control. At the same time, they have liability shield, but that shield can be disregarded if limited partners actively manage the partnership business.

 

Is an LLP always the best or only choice? No.
There is a variety of other business structures to choose from, including GPs, LPs, limited liability companies and corporations. The “best” choice will depend on numerous criteria including tax considerations, the owners’ risk tolerance and their willingness to perform post-creation business formalities.

It is prudent to seek the advice of a competent attorney and certified public account prior to establishing any business structure. Please contact the author if you wish to discuss this article or his practice areas.

This article is provided solely for the general interest of the reader. The article and its contents are neither intended as, nor should be construed as, legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to specific factual situations.

Barry F. Gartenberg, L.L.C.
Attorney at Law
505 Morris Avenue, 1st Floor
Springfield, New Jersey 07081
973-921-0600
www.bgartenberg.com
bfg@bgartenberg.com