Mark Briggs Phoenix Attorney on Limited Partnerships and Their Specific Advantages

Limited Partnership

Limited partnerships definitely have advantages, but they are also so complex that starting a limited partnership requires a lot of paperwork that should be completed by an attorney. They can be unequal partnerships that give some partners far more responsibility and ownership than others. In fact, this disparity is what distinguishes limited partnerships from general partnerships.

Limited partnerships are more complicated than general partnerships. Owner-partners are classified in two ways:

  1. General partners manage the business and are personally responsible for its debts.
  2. Limited partners contribute capital, share profits, and do not participate in management of the business. They are not responsible for debts of the firm.

Limited partners are like shareholders of a corporation because they aren’t liable for debts, which make it easier for general partners to attract them to invest.

Limited Partnerships and Taxes

A limited partnership does not pay income taxes, but its partners do. Its income is instead imputed to its partners, who report their respective shares of the partnership’s income on their individual tax returns and are responsible for income taxes on that income.

Examples of Limited Partnerships

One derivation of limited partnerships is the limited liability partnership. Many professional services businesses, such as law firms and accounting firms, are formed as limited liability partnerships. One advantage of this entity is that the partners are not usually personally responsible for the liabilities of the business, even if they participate in management of the business like a general partner in a limited partnership.

Getting Started in Forming a Limited Partnership

Although you will need a partnership agreement and should get a lawyer to help you write that document, you can get started in forming the entity by completing and filing a Certificate of Limited Partnership. The Arizona Secretary of State’s office charges a filing fee of $10 plus $3 for each page. Other fees are listed on the office’s website.

The state accepts limited partnership forms at its office in person on weekdays from 8 a.m. to 5 p.m. The office is on the first floor of the Executive Tower of the State Capitol at 1700 W. Washington, between Jefferson and Adams. You can also mail the form to:

Secretary of State
Attention: Limited Partnerships
1700 W. Washington Street, 7th Floor
Phoenix, AZ 85007
The Secretary of State’s office also answers on its website’s FAQs.
Photo Credit: Caitlin Childs

Mark Briggs Phoenix Attorney: Purpose of Operating Agreements

Mark Briggs Phoenix Attorney

What is the purpose of an operating agreement?

Limited liability companies, or LLCs, are very attractive to small business owners, and for good reason: compared to other types of business entities, LLCs are easy to set up, easy to maintain, and offer increased personal protection. (Read more about LLC’s here.) Although LLCs require less paperwork than, say, an S corporation, they do require an operating agreement to be put in place.

What’s an operating agreement?

An operating agreement is a written document – typically 10 to 30 pages – that sets forth the financial and functional aspects and responsibilities of the business. Once the agreement is written, LLC members sign the agreement and are then bound by its terms just like any other contract. Arizona does not require that operating agreements be filed, but you should keep a copy with your attorney and in a central place where you keep important records.

The rules regarding the structure of the document are fairly flexible; in general, an operating agreement is written in such a way as meets the needs of the owners.

What elements are included in an operating agreement?

An operating agreement outlines a business’ internal operations by including the following information:

  • Each member’s percentage of ownership
  • Each member’s voting rights and responsibilities
  • The responsibilities and powers of each member
  • Distribution of the business’ profits and/or losses
  • Information about business meetings, including frequency
  • Rules regarding the transfer of interest in the business

Why does my LLC need an operating agreement?

There are three primary advantages to having an operating agreement:

Personal liability protection: The primary purpose of an LLC can be found in its name. It limits the personal liability of the members in the event of legal action against the company. The operating agreement acts to protect that limited liability status, and without it, it may be difficult to prove that your company is not simply a sole proprietorship or partnership, both of which can leave you exposed or held liable for damages brought against your company.

To put oral agreements in writing: Communication is imperfect at best.  Ever try the “telephone game”? So, important agreements like operating agreements should always be put in writing so everyone knows what the deal is. Also, after it is signed, nobody looks at their operating agreement until there is a dispute about something. So, the operating agreement will be an important tool in resolving conflicts between the members of the LLC.

To avoid your state’s default laws: If your LLC does not have an operating agreement, default state laws regarding LLCs will be put into play. These laws are written in very broad terms to ensure they apply to a wide variety of businesses; as a result, these laws probably will not be ideally suited for your situation.

Is an Arizona LLC required to have an operating agreement?

No, but it is really dumb not to have one in place. Really expensive, time-consuming fights can be completely avoided with a thoughtfully drafted operating agreement.  Some LLC owners forget to draft the operating agreement or try to save money by not doing it, and they almost always regret it sooner or later.  You will spend more money in one day fighting with your partners than it would cost to just get the operating agreement put in place up front.

Photo Credit: Aidan Jones



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