In my last post about Illinois business organizations, I discussed general partnerships. I noted that, while general partnerships are easy to form and not subject to many formalities, the lack of liability protection for the partners makes the structure a poor choice for individuals. In this post, I’ll cover two kinds of Illinois partnerships that address that problem: limited partnerships and limited liability partnerships.
Limited Partnerships (LPs)
An LP is a partnership with two classes of partners that is formed by filing a special document with the government. General partners in an LP exercise control over the LP’s business and are subject to personal liability for the LP’s obligations. Limited partners do not exercise control over the LP’s business, and are generally not personally liable for the LP’s obligations.
Formation: To form an LP, the partners must file a certificate of limited partnership with the Illinois secretary of state. Simultaneously, they must pay a $150 filing fee. The certificate of limited partnership provides basic information about the LP to be formed, including the name and street address of the general partners.
Liability Protection: As noted above, an LP offers liability protection only to its limited partners. General partners in an LP are jointly and severally liable for the LP’s obligations, just like the partners in a general partnership. Because of this, LPs frequently use another business organization—like a corporation or limited liability company—as their general partner.
Formalities: As in a general partnership, the partners in an LP should have an attorney draft a written partnership agreement for them. But the law requires some additional formalities of an LP. First, the LP must maintain an agent for service of process within the state of Illinois. Like the title suggests, an agent for service of process is a person who receives any lawsuit papers on the LP’s behalf. Second, Illinois law requires LPs to maintain certain records, like tax returns and any financial statements, and make them available to the partners. Finally, LPs must file an annual report with the Illinois secretary of state within the 60 days preceding the anniversary month of the LP’s formation.
Limited Liability Partnerships (LLPs)
Technically, an LLP is not a distinct type of business organization. Instead, it’s a status that a general partnership can choose. If a general partnership chooses to be an LLP, then the partners in the general partnership will be protected from the partnership’s liabilities.
Formation: A general partnership chooses to become an LLP by filing a statement of qualification with the Illinois secretary of state, along with a filing fee of $100 per partner (up to $5,000). The statement of qualification lists information like that in an LP’s certificate of limited partnership. However, unlike an LP’s certificate of limited partnership, which can last indefinitely, a statement of qualification only qualifies a general partnership as an LLP for one year. To maintain its status as an LLP, a general partnership must file a statement of renewal, along with a filing fee of $100 per partner (up to $5,000) once a year.
Liability Protection: The partners in a general partnership that has chosen to be an LLP are protected from the obligations of the partnership. However, this protection only applies to obligations incurred while the general partnership is an LLP.
Formalities: The legal formalities that an LLP must satisfy are generally the same as those that a general partnership must satisfy. Though not legally required, the partners should have an attorney draft a written partnership agreement for them. Additionally, the LLP must maintain an agent for service of process within the state of Illinois. Finally, as already noted, the LLP must file a statement of renewal, along with a filing fee, once a year.
Limited Liability Limited Partnership: When an LP files its certificate of limited partnership, it can choose to be a limited liability limited partnership (LLLP). As is the case with an LLP, the general partners in an LLLP are protected from the obligations incurred by the LLLP while that status continues.
As you can see, Illinois LPs and LLPs offer more liability protection than Illinois general partnerships do. But they also impose additional legal formalities on the partners and career associates. That’s generally going to be the trade-off that business owners must consider when choosing what kind of business organization to form. My next post on this topic will look at how this trade-off affects another kind of Illinois business organization, the limited liability company.
If you have questions about LPs, LLPs, or other Illinois business organizations, or you’re wondering which kind is best for your business, please call Legal Ally today.