How to Start a Limited Liability Partnership in Texas | 2024 Guide

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Start a Limited Liability Partnership in Texas

A Limited Liability Partnership (LLP) is a popular business structure offering the flexibility of a partnership while providing limited liability protection like starting an LLC in Texas. LLP structure is ideal for attorneys, accountants, and consultants. If you’re considering starting a Limited Liability Partnership in Texas, this comprehensive guide will walk you through the necessary steps, from researching and planning to ongoing compliance and reporting requirements.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your Texas LLP, all the steps in this article must guide you.

Steps in Starting a Limited Liability Partnership in Texas

What is a Limited Liability Partnership?

Forming an LLP is like starting an LLC as well. However, there are differences in terms of it. A Limited Liability Partnership (LLP) is a type of business structure that combines elements of partnerships and corporations. It allows multiple individuals, known as partners, to jointly own and manage the business while providing limited liability protection to each partner. This means that each partner’s assets are generally protected from the debts and liabilities of the business, and they are only liable for their investment in the partnership.

LLPs are popular among professional service providers, such as lawyers, accountants, and consultants, as they allow for flexible management structures and profit-sharing arrangements. The partners in an LLP can directly manage the business, unlike forming a Corporation in Texas, where a board of directors typically handles the management.

Each partner’s liability is also limited to the extent of their investment, and they are not personally responsible for the negligence or misconduct of other partners. This is a key difference between an LLP and Texas General Partnership, where partners have unlimited liability for the partnership’s actions and other partners.

It is suggested that you speak with a legal professional before you begin setting up your limited liability partnership. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC rather than a limited liability partnership.

– WEBINARCARE EDITORIAL TEAM

Steps in Starting a Limited Liability Partnership in Texas

To form a limited liability partnership in Texas, you must consider following the below guidelines that include research and planning, choosing an LLP name, designating a Registered Agent, filing for Certificate of Formation, drafting a partnership agreement, get an EIN, obtaining necessary licenses and permits, the opening of business bank account and maintain ongoing compliance and reporting requirements. 

Step 1: Research and Planning

Before forming an LLP in Texas, you must familiarize yourself with the state’s laws and regulations governing LLPs. Conduct thorough research to determine if an LLP is the right business structure for your needs, and create a detailed business plan outlining your goals, strategies, and financial projections.

Step 2: Choose an LLP Name

Selecting a unique and appropriate name for your LLP is crucial. First, check the availability of your desired LLP name with the Texas business registry. Ensure that your chosen name follows Texas naming guidelines and requirements, which typically include the use of “Limited Liability Partnership” or “LLP” in the name. You can register and reserve the name with Texas Secretary of State if desired.

Here are some guidelines you must follow while naming your LLP in Texas- 

  • Be distinguishable from other businesses registered in your state
  • Include the words “Limited Liability Partnership,” “LLP,” or a similar abbreviation.
  • Not include words that are restricted by your state
  • Ensure that your chosen name does not infringe on any existing trademarks or intellectual property rights.

However, to check the availability of your desired LLP name, you can also search the Texas Secretary of State business name database and Texas Business Name Search. If the name is available, you may choose to reserve it for a specific period of 120 days by filing a name reservation application and paying the online name reservation fee of $40 and mail name reservation fee of $40. If your LLP plans to operate under a name other than its legal name, you may also need to register a fictitious or “Doing Business As” (DBA) name. 

The DBA filing can be done by two methods, by mail, and in person, which costs varies by county. In addition, the DBA’s validity in Texas is ten years, which you can file with the Texas Secretary of State.

You can check out how to file a DBA in Texas for clearer understanding.

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Step 3: Designate a Registered Agent

In Texas, you’ll need to designate a Registered Agent for your LLP. The Registered Agent is responsible for receiving the partnership’s important legal and tax documents. Choose a qualified individual or Texas Registered Agent Services to serve as your LLP’s Registered Agent, ensuring that they meet Texas requirements.

However, If you plan to become a Registered Agent of your own LLP, follow the steps below. Also, this applies a guideline in hiring your registered agent.

  • Research the requirements in the state where you want to offer your service. Each state has specific criteria, such as having a physical address and being available during normal business hours.
  • Obtain a physical address in the state(s) if needed.
  • Be familiar with the rules, regulations, and compliance requirements for businesses in your state.
  • Create a business plan outlining your services, pricing, and marketing strategy.
  • Register your business entity, such as an LLP, if required.

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Step 4: File a Certificate of Limited Liability Partnership

To officially form your LLP, you must file a Certificate of Limited Liability Partnership with the Texas Secretary of State. Obtain the necessary forms and provide the required information, such as the LLP name, principal office address, registered agent’s name and address, names and addresses of partners, and management structure. Pay the required filing fee and submit the completed forms to the Texas Secretary of State’s office.

Step 5: Draft a Partnership Agreement

A well-crafted partnership agreement is essential for governing your LLP and protecting the interests of its partners. This document should cover crucial provisions such as roles and responsibilities of partners, profit and loss sharing, decision-making processes, partner admission and withdrawal, and dispute resolution. Consider having the partnership agreement reviewed by an attorney to ensure its completeness and compliance with Texas laws.

A partnership agreement should include the following:

  • Business name
  • Description of the business
  • Contact information of the business and its owners

Ownership of all business partners, decision-making, capital contribution, profits and distribution, death and disability, and withdrawal and addition of partners is one of the key factors to consider when forming or creating a partnership agreement. In this way, all business partners will understand what this is all about and how to proceed if the mentioned scenarios happen. 

Without a partnership agreement, your company will often be subject to the general partnership default laws of Texas. The default laws in Texas might not be appropriate for your requirements.

Step 6: Get an EIN

Your LLP must obtain Texas Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The application of an EIN can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN, you can benefit in several ways. It will give your LLP the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 7: Obtain the Necessary Licenses and Permits

Depending on your specific industry, you may need to obtain Texas Business Licenses and permits to operate your LLP. Research your business’s licensing and permit requirements and apply for them accordingly.

You can check out the United States Business License & Licensing Fee Resources for more information about the costs in Texas.

Step 8: Open a Business Bank Account and Obtain Insurance

Maintaining clear financial records is crucial for any business, so open a separate bank account for your Texas LLP. Additionally, obtain the necessary Texas Business Insurance, such as general liability insurance, professional liability insurance (if applicable), and workers’ compensation insurance (if you have employees). 

Check the Best Bank for Small Businesses in Texas to open a bank account.

Step 9: Maintain Compliance and Reporting Requirements

Stay informed about and comply with relevant laws and regulations to keep your LLP in good standing. File Annual Reports with the Texas Secretary of State (if required), maintain accurate financial and operational records, and file and pay required taxes at the federal, Texas, and local levels.

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Advantages of Forming a Limited Liability Partnership in Texas

While the specific advantages of forming an LLP in Texas can vary depending on the state’s unique laws and regulations, several public benefits associated with LLPs often apply across jurisdictions. Here are some advantages to consider when forming an LLP in Texas:

  • Limited Liability Protection: One of the main benefits of an LLP is its limited liability protection to its partners. This means that each partner’s assets are generally protected from the debts and liabilities of the business, and they are only liable for their investment in the partnership.
  • Pass-through Taxation: An LLP typically enjoys pass-through taxation, which means that the profits and losses of the business are passed through to the partners, who report them on their personal income tax returns. This avoids the double taxation often associated with corporations.
  • Flexible Management Structure: Unlike corporations requiring a board of directors, LLPs allow for a more flexible management structure. Partners in an LLP can directly manage the business and make decisions without needing a formal board.
  • Profit-sharing Flexibility: The partnership agreement can outline the distribution of profits and losses among partners, allowing for a customized profit-sharing arrangement based on the partners’ preferences and contributions.
  • Easier Formation and Compliance: Forming an LLP is generally less complicated and expensive than forming a corporation. Ongoing compliance requirements may also be less burdensome than other business entities, depending on the specific laws and regulations in Texas.
  • Professional Credibility: Forming an LLP can enhance your business’s professional credibility, as it demonstrates a commitment to a formal business structure and can offer reassurance to clients, customers, and potential investors.

Bear in mind that the advantages of forming an LLP in Texas may vary based on the specific laws and regulations governing LLPs. Researching the applicable laws and consulting with legal or financial advisors is essential to fully understand the benefits and requirements of forming an LLP in Texas.

Cost of Forming an LLP in Texas

The cost of forming an LLP in Texas may vary depending on the required filing fees and any additional services you may need. The filing fee for a Certificate of Limited Liability Partnership typically ranges from $50 to $200, depending on the state.

Can I Form an LLP in Other States?

You can form an LLP (Limited Liability Partnership) in other states. To form an LLP in a different state, you must follow that state’s specific registration requirements and filing procedures. This usually involves filing an application or certificate of registration, paying a registration fee, and obtaining any necessary permits or licenses.

Additionally, you may need to register your LLP as Texas Foreign LLC if you plan to conduct business in multiple states. It is advisable to consult with an attorney or a business consultant familiar with the laws and regulations of the state where you plan to form your LLP.

Can an LLP Need to Have One Owner?

An LLP (Limited Liability Partnership) cannot have just one owner. By definition, an LLP is a partnership, which means it requires at least two partners to be formed. If you want a business structure with limited liability protection and only one owner, you may consider forming a Single-Member LLC in Texas instead. An LLC can have one or more owners, known as members, and offers limited liability protection and pass-through taxation. The requirements for forming an LLC will vary by state, so consult your state’s laws and regulations.

FAQs

What is a limited liability partnership in Texas?
A limited liability partnership in Texas is a partnership that offers protection for the personal assets of LLP partners.
Can anyone form an LLP in Texas?
Not just anyone can form an LLP in Texas; partners must file the necessary paperwork with the Texas Secretary of State.
How much does it cost to form an LLP in Texas?
The cost to register an LLP in Texas varies based on the number of partners and other factors.
What are the tax implications of forming an LLP in Texas?
An LLP in Texas is usually subject to formation and annual franchise taxes, as well as potential income tax liability for individual partners.
What are the benefits of forming an LLP in Texas?
The biggest benefit of forming an LLP in Texas is limiting the personal liability of individual partners for any business debts or lawsuits.
How many partners are required to form an LLP in Texas?
At least two partners are required to form an LLP in Texas.
Are there any specific laws or regulations pertaining to Texas LLPs?
Texas has its own set of laws and regulations governing LLPs, which all partners must abide by.
What paperwork is required to register an LLP in Texas?
To register an LLP in Texas, partners must submit a Certificate of Formation form to the Texas Secretary of State.
Is it required to have an attorney in Texas to assist in the formation of an LLP?
While it is not necessarily required to have an attorney assist in the formation of an LLP in Texas, it is highly recommended to ensure that all necessary steps are followed.
How long does it take to form an LLP in Texas?
The amount of time it takes to form an LLP in Texas depends on various factors, including how quickly paperwork is filed and whether there are any issues that need to be resolved.
What should partners consider before forming an LLP in Texas?
Before forming an LLP in Texas, partners should consider factors such as business goals, potential risks, and the legal and tax implications of such an entity.
Can an LLP be formed for any type of business in Texas?
LLPs can be formed for a variety of businesses in Texas, as long as they meet the legal requirements.
How does the liability of an LLP partner differ from that of a general partnership partner in Texas?
LLP partners in Texas usually have less personal liability for business debts and lawsuits than general partnership partners.
Are there any restrictions on the business activities that an LLP can engage in in Texas?
An LLP in Texas must abide by certain restrictions as set forth by the state’s laws, but should otherwise be able to engage in most types of business activities.
What is the process for changing partners in an LLP in Texas?
LLP partners in Texas can change by undergoing a process of admission, resignation, or dissolution as outlined in the state’s laws.
Is a written agreement necessary to form an LLP in Texas?
While not required by the state, it is highly recommended that an LLP enter into a written agreement outlining the rights and responsibilities of each partner and governing the entity’s operations.
What needs to be included in an LLP agreement in Texas?
An LLP agreement in Texas should include details on the partners’ contributions, allocations of profits and losses, and decision-making processes, among other details.
How are profits and losses distributed among partners in an LLP in Texas?
The profits and losses of an LLP in Texas are usually distributed among the partners according to an agreement established when the LLP is formed.
Can LLP partners take a salary in Texas?
LLP partners may take a salary from the business entity in Texas if they wish, provided that it complies with the state’s tax laws.
Are there any ongoing requirements that an LLP must meet in Texas?
LLCs in Texas must meet certain continuous requirements, such as filing annual reports and maintaining any necessary permits or licenses.
How are LLPs taxed in Texas?
LLPs in Texas are usually treated as pass-through entities for tax purposes, meaning that the income and deductions are passed on to individual partners’ tax returns.
What happens if there is a disagreement among LLP partners in Texas?
Disputes among LLP partners in Texas may be resolved through methods such as mediation or arbitration, or may be litigated in court if necessary.
Can an LLP in Texas be sued?
An LLP in Texas can be sued if business operations or conduct violate the state’s laws or cause damages to another party.
Is it possible for an LLP partner to be held personally liable in Texas?
LLP partners in Texas may be able to be held personally liable in certain situations if they are deemed to be responsible for business debts or damages resulting from lawsuits.
What is the process for dissolving an LLP in Texas?
LLPs in Texas can be dissolved by filing a Certificate of Termination with the Texas Secretary of State.
How are the assets of an LLP distributed when it is dissolved in Texas?
When an LLP is dissolved in Texas, its remaining assets are generally distributed according to a liquidation agreement or otherwise as determined by state law.
Can a foreign LLP do business in Texas?
Foreign LLPs (LLPs formed in other states or countries) can do business in Texas, but they must be registered with the Texas Secretary of State before commencing operations.
Are there penalties for failing to comply with Texas LLP requirements?
Failure to comply with Texas LLP requirements may result in steep penalties or even the dissolution of the LLP.
What is a limited liability partnership (LLP)?
It is a type of business structure where the owners have limited liability for the business’s debts and obligations.
How is an LLP formed in Texas?
In Texas, you must file a certificate of formation with the Texas Secretary of State and pay a filing fee.
Can I form an LLP with just one owner in Texas?
No, Texas LLPs require at least two owners or partners.
Who can form an LLP in Texas?
Anyone can form an LLP in Texas – individuals, partnerships or corporations can be partners in an LLP.
Does Texas require an agreement between partners in an LLP?
Yes, partners in a Texas LLP must have a written partnership agreement that outlines how the business will be run.
Are there any residency requirements for LLP partners in Texas?
No, Texas does not require that all partners in an LLP be residents of the state.
What is the liability protection offered by an LLP in Texas?
In Texas LLC, partners are not personally responsible for the business’s debts or liabilities, except in certain situations such as fraud.
What is the tax structure of an LLP in Texas?
An LLP in Texas is taxed as a partnership rather than as a separate entity.
How is an LLP taxed in Texas?
The LLP typically files an annual Texas franchise tax report, and each partner pays taxes on their share of the LLP’s profits on their personal tax returns.
Are LLPs required to register with the Texas Comptroller of Public Accounts?
Yes, LLPs must register with the Texas Comptroller of Public Accounts.
How often do Texas LLPs need to file an annual report?
Texas LLPs must file an annual report with the Secretary of State before the end of the anniversary month each year.
Can Texas-based LLPs do business in other states?
Yes, Texas LLPs can do business in other states, but they must comply with the other state’s registering requirements.
What is a Certificate of Account Status, and does it need to be filed by an LLP in Texas?
Certificate of Account Status (COAS) the certificate that confirms the company has a current tax account with the State of Texas and it is required for Foreign LLPs doing business in Texas to obtain a State Tax ID Number.
What should an LLP name end with in Texas?
The name of an LLP in Texas must end with “LLP” or “Limited Liability Partnership.”
How much does it cost to file for an LLP in Texas?
The fee for filing a certificate of formation for a Texas LLP is typically around $200, but it may vary.
What are the initial requirements for an LLP to begin doing business in Texas?
After filing the certificate of formation, you may need to obtain various permits, licenses, and tax identification numbers before the company is authorized to do business in Texas.
Can a Texas LLP have multiple locations?
Yes, a Texas LLP can have multiple locations.
Can individuals with felony convictions be part of an LLP in Texas?
Yes, but any partner convicted of certain forms of fraud may be prevented from continuing in the partnership.
What disclosures are required on a Texas LLP’s certificate of formation?
The certificate of formation for a Texas LLP must disclose the partnership’s name, number of partners, business purpose, and registered agent’s information.
Does the LLCRA message amending the Certificate of Formation need to be filled for an LLP in Texas?
Yes, Texas LLPs must file a Certificate of Amendment to update any changes to the company’s Certificate of Formation.
Where can I find further resources about forming an LLP in Texas?
The Texas Secretary of State’s website is an excellent resource for information about forming an LLP in Texas.
How much does it cost to dissolve an LLP in Texas?
The fee for filing a certificate of termination for a Texas LLP is $40.
How long does it take to dissolve an LLP in Texas?
Texas allows you to dissolve an LLP voluntary by filing a Certificate of Termination and ends business activities, a lawyer’s assistance may be necessary to the LLP’s affairs final fulfillment.
Can the LLPs form by the professionals in Texas?
Certain professions in Texas allow professionals such as accountants and lawyers to operate—and receive the liability protection traditionally afforded to LLCs—under a special Limited Liability Partnership (“LLP”) structure. .
Are foreign LLPs required to register in Texas?
Yes, foreign LLPs – those LLPs formed outside Texas or doing business in Texas – must register and get a state business registration while doing business in Texas.
What can the profits and losses of LLP distribute among partners?
The income, loans, or some kind of debt can distribute and allocated among the partners according to their agreed percentage of share mentioned in LLP agreement all profits losses expenses are accountable to the partners.

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Conclusion

Starting an LLP in Texas may seem daunting, but you can successfully establish and run your business with thorough research, planning, and compliance with legal requirements. Feel free to seek professional assistance from legal or financial advisors when needed to ensure your Limited Liability Partnership’s smooth operation and growth in Texas.

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