Transferring your business from a traditional partnership to a limited liability partnership (LLP) doesn’t require a lengthy or complicated procedure.
The primary steps you should follow are below.
Review All Agreements
Check your current Partnership Agreement before beginning the process of converting to an LLP. Typically, you need a unanimous vote for the conversion. You will likely need to communicate your reasoning for the change. You can also discuss ways the business would benefit from operating under a new structure.
You might also need to review contractual agreements with your employees, customers, and suppliers. It’s possible to transfer most contracts, but updating them might be necessary to reflect the conversion.
Register the LLP
You must choose a name for the entity and include L.L.P. or limited liability partnership in the title. Complete an application for registration and file it with the North Carolina Secretary of State. It’s vital to check whether someone else is using the name you pick.
Designate a Statutory Agent
You must name a statutory agent for your LLP. This person will accept legal papers on behalf of the business or represent the LLP in any matter.
Get an Employer Identification Number
You need to get an employer identification number (EIN) from the Internal Revenue Service (IRS) since this is a separate entity from your current partnership.
Create Partnership Agreement
State law doesn’t require a partnership agreement when converting to an LLP. However, creating a comprehensive agreement could benefit your business. You can outline each partner’s responsibilities and establish what can and cannot be done while making business-related decisions.
Obtain Business Licenses
You must obtain the necessary business licenses for your LLP. Additionally, you might also have to register with the Department of Revenue if you plan to sell taxable goods.
File Your Annual Report
In North Carolina, all LLPs must file an annual report to maintain the registration of your business as a legal entity. You can file online using pre-filled information from when you originally formed the LLP. However, if you made any changes, such as the company name or registered agent, you must update those details.
What Makes an LLP Different from a Traditional Partnership?
A traditional partnership is an arrangement between two or more people to share profits and losses mutually in a business. Each partner is severally and jointly liable for all acts committed by the business.
In an LLP, a partner is not individually responsible for the general obligations and debts of the partnership. They are, however, still responsible for their own adherence to standards of professional conduct.
What are the Benefits of Converting to an LLP?
Multiple benefits are available when operating a business as an LLP, such as:
- Avoid double taxation – The losses and profits of the business pass through to the partners. Each partner must include the profits and losses when filing their personal income taxes. They share the profits and avoid tax consequences for losses since they don’t have to include them on the business tax return.
- Limited liability – Every partner has management control over the business and remains protected while in an LLP.
- Flexibility – Partners and owners can enjoy flexibility in determining how to run the business. They can establish who will make certain decisions and how each partner will contribute to managing and operating the business.
How We Can Help
Mullen Holland & Cooper, P.A., has represented clients in Gastonia, NC, since 1950. Our experienced and dedicated business lawyers can assist you with every aspect of your LLP, including its formation, partnership agreements, and licensing. You can count on us to protect you and your interests during each stage of the process.
If you want to discuss your options for converting your traditional partnership to an LLP, call Mullen Holland & Cooper, P.A., at 704-864-6751 right now for your initial consultation.