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A Deeper Dive on Partnerships

Investopedia says a partnership “is a formal arrangement by two or more parties to manage and operate a business and share its profits.” In general, partnerships are easier to set up than LLCs or corporations and may not be subject to the same rules and regulations as LLCs or corporations.

The IRS notes that while a partnership does not pay income tax, it “must file an annual information return to report deductions, gains, losses, etc., from its operations.” Each partner then reports their share of the partnership’s income or loss on their personal tax return.

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Four types of partnerships exist: general partnership, limited partnership, limited liability partnership, and limited liability limited partnership.

The State of Alabama’s requirements for articles of organization differ for the four types of partnerships and are discussed in the sections below. However, as all partnerships have more than one member, each will require an operating agreement.

We take a closer look at operating agreements in the final post in this series. 

 

General Partnership

A general partnership does not enjoy limited liability, meaning your personal assets could be at risk if your partnership is sued or goes into debt. The State of Alabama does not require you to submit any official formation documents like it does with corporations, LLCs, and limited liability partnerships. You will, however, need to check the Business Entity Records to make sure another business isn’t already using your desired name.

 

Limited Liability Partnership

Investopedia notes that limited liability partnerships (LLPs) are a common structure for professionals like accountants, lawyers, and architects. “This arrangement limits partners’ personal liability so that, for example, if one partner is sued, the assets of the other partners are not at risk.”

Like LLCs, an LLP is a pass-through entity in which the tax responsibility is passed through the partnership to the individual partners.

To establish an LLP in Alabama, you’ll need to file the Domestic Limited Liability Partnership Statement of Limited Liability Partnership with your county and the state. You’ll also need to file a form to reserve the name of your LLP. (You can check that your desired name is available here.) The form will be submitted along with the Certificate of Formation. (Your LLP’s name must include the words “Limited Liability Partnership” or the abbreviations “L.L.P.” or “LLP.”)

The Statement of Limited Liability Partnership will require the name of the LLP, the street address and mailing address of the principal office, a statement of purpose for the LLP, the names and addresses of the organizers.

 

Limited Partnership

A limited partnership is a hybrid approach. One of the partners is designated as a general partner, who has full liability for the partnership’s debts. At least one other partner is a silent partner, “whose liability is limited to the amount invested” and is not generally involved in the day-to-day operations of the business. The State of Alabama does not require you to submit any official formation documents, except the Name Reservation Request Form. (You can check the Business Entity Records to make sure another business isn’t already using your desired name.)

 

Limited Liability Limited Partnership

What a name. Investopedia says that a limited liability limited partnership (LLLP) is a limited partnership “that provides a greater shield from liability for its general partners.”

To establish an LLLP in Alabama, you’ll need to file the Domestic Limited Liability Limited Partnership Certificate of Formation with your county and the state. You’ll also need to file a form to reserve the name of your LLLP. (You can check that your desired name is available here.) The form will be submitted along with the Certificate of Formation. (Your LLLP’s name must include the words “Limited Liability Limited Partnership” or the abbreviations “L.L.L.P.” or “LLLP.”)

The Certificate of Formation will require the name of the LLLP, the name and address of the registered agent, the name(s) and address(es) of the general partner(s).

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