New Jersey Limited Liability Partnerships

New Jersey’s partnership law has, for some time now, permitted the formation of limited liability partnerships (“LLPs”). In December of 2000, the partnership law underwent a major revision which makes LLPs an even more attractive alternative to the general partnership (“GP”) form of business. Perhaps the following will serve to demystify LLPs.

What is a GP?  A general partnership (a.k.a. “partnership”) is an association of two or more persons to carry on as co-owners 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 as co-owners a business for profit creates the GP. However, as with all business structures, there are post-creation formalities associated with GPs. For example, GPs must register with the State for tax and employment responsibilities. 

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. In New Jersey, a Statement of Qualification must be filed for the State to recognize the existence of an LLP. Also, once created, the LLP’s name must include one of the following designations at the end of its name: Registered Limited Liability Partnership, Limited Liability Partnership, R.L.L.P., L.L.P., RLLP, or LLP.

Are there fees associated with creating and maintaining an LLP? Yes. In New Jersey, 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 LLPs? 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 debt or obligation. An LLP shields its partners from personal liability for most debts and obligations incurred in the normal course of partnership business.

Are partners of a GP entitled to be repaid if they pay more than their share of partnership debts and obligations? Yes. However, entitlement does not guarantee repayment. A partner seeking repayment may be forced to endure the time and expense of suing the other partner, and a judgment against another partner will be of little value unless that partner has assets sufficient to satisfy the judgment.

Can partners minimize risk through insurance? Yes, to some extent. Most risks associated with general negligence (e.g. “slip and fall”) are insurable. Generally, contract risks (e.g. “bad deals” and lack of profitability) are not insurable.

What is the difference between LLPs and limited partnerships? The availability of limited partnerships (“LPs”) pre-date modern LLPs. LPs are far more complex business structures than LLPs. LPs have two classes of partners-limited and general. Typically, the liability of limited partners is limited to the value of their partnership interest, however, they are prohibited from playing an active role in managing the partnership business. 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 debt or obligation.

Is an LLP always the best or only choice? No. There are a variety of other structures available in New Jersey 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.

Is legal representation required for the formation of an LLP? No. An LLP (as well as other business structures) may be formed without an attorney. However, it is prudent to seek the advice of a competent attorney and certified public account prior to establishing any business structure.

Please feel free to contact the author if you wish to discuss this article or his practice areas.

____________

Barry F. Gartenberg, Esq. - 788 Morris-Essex Turnpike - 2nd Floor - Short Hills, New Jersey 07078 - 973-921-0600

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.