Limited Liability Partnerships
Sleek Financial Consultant LLP
Introduction
Sleek Financial Consultant LLP is the proposed business concept. This concept aims at providing logistical and advisory financial services to corporate entities and private individuals. This business will mainly take the form of a limited liability partnership. A limited liability partnership is a business entity that entails ownership of the business by more than one individual who are protected from the debt and losses of the business (Clarkson, 2009). Limited liability partnerships are different from general and limited partnership because the owners are shielded from the liabilities of the business (Friedman, 2000). However, this form of business entity incorporates some features of corporations and limited partnerships.
Features of Limited Liability Partnership
Limited Liability Partnership usually involves ownership by more than an individual (Clarkson, 2009). The partners contribute towards the capital formation of the business, running of the business, they share business profits, losses and risks. The liability of the partner within this form of business is limited. This means that the business become a separate entity from its owners. Like general partnerships, limited liability partnerships also enjoy pass-through treatment in the payment of tax. This means that the business itself is not taxed for its income but rather the profits passed down to the partners (Clarkson, 2009).
Debts, omissions and mal-practices and negligence committed by the organization do not affect the partners. Similarly debts or issues affecting one of the partners do not spread to the business. Profits are distributed among partners in the form of compensation (Friedman, 2000). This form of business was selected because it has various advantages over other forms of business.
Advantages of Limited Liability Partnerships
One advantage of a limited liability company is that it has multiple owners of the business (Friedman, 2000). This is means that the capital requirements of the business are shared among partners reducing the burden on each individual. The risks and losses of the business are also shared among the partners. This is unlike in sole proprietorship where losses resulted from the operations of the business or risk associated with incidents such as natural calamities are bore by a single individual.
The status of the entity as having limited liabilities is also an advantage to the business (Clarkson, 2009). This status shield the partners from errors and mistakes committed from the business and the partners themselves cannot be held personally responsible of what happens in the business. For example debt incurred by the business cannot be recovered by confiscating the private properties of any of the partners. The limited liability status also shields the business and other partners from the mistakes committed by one of the partners. For example, if one of the partners goes into debt, the property of the company or the other partners cannot be seized by the creditors to recover the debts.
This form of business also has a flexible means of distributing profits (Clarkson, 2009). Unlike in corporations that only take into account contribution of partners towards capital investments, limited liability partnerships also take into account elements such as partner contribution towards the management and operation of the company. This flexibility in sharing of profits will be advantageous as it will rewards efforts and commitment of partners towards the business.
Limited liability partnerships also have an advantage over corporations when it comes to taxation (Clarkson, 2009). Limited liabilities partnership enjoys pass-through treatment in the payment of tax which allows the partners revenues to be taxed once. Under this system taxes are only charged on income that has been passed through to the partners and not the profit made by the business as whole. Corporations on the hand are usually charged corporate tax when the income is still in the company’s hand while the individual share holders are charged additional income tax when the profits are finally passed through to them.
The limited liability partnerships also have an advantage when it comes to the management of the business (Clarkson, 2009). Just like general partnerships, limited liability partnerships have the freedom to adopt any structure for their business organization. This flexibility allows partners to shape the business to what they would like to be without being compelled by outside forces.
Shortcoming of these form of business were also considered before making this decision (Clarkson, 2009). These are such as difficulties in decision making as every partner must be consulted and sharing of profits.
Requirements for Starting a Limited Liability Company
Certificate of Registration
The first requirement when forming a limited liability partnership is the Certificate of registration. According to the CaliforniaState laws, a person applying for a certificate of registration for a limited liability partnership must first provide a name and address of the company (Government of California, 2011). The name of the business must bear the words “Registered Limited Liability Company” or “Limited Liability Partnership” or the abbreviations “L.L.P” “LLP’, R.L.L.P, or “RLLP”. The applicants must also provide the name and addresses of the agent for service of process.
Service of process refers to the procedures involved in proving a legal notice by an administrative body or a court. The agent of process is therefore a representative of the business through whom the legal papers will be served. Before getting the certificate of registration, the applicants must also provide a description of the field in which the partnership will operate. For the case of our business, we will give a description for the field of financial services. The applicant will also stipulate other matters that they would like included in the certificate. The application should then be accompanied with a registration fee (Government of California, 2011).
Professional Registration
Besides registering the company with the secretary of state of California, limited partnership business must also be registered by the professional bodies (Cathleen, 2010). For our business, registration will be made with financial bodies within the organization. These are such as the Southern California Financial Association which is a subset of the Association of Financial Associations. These bodies ensures that business operate within the professional standards of the given field.
Security Requirements/ Certification
Since the liability of this form of business is limited, the business is required to provide security that will cushion the people from errors, omissions, malpractices and debts by the company (Cathleen, 2010). The limited liability status of business means that the partners and their private property are shielded from mistakes and liabilities of the business. It is in regard to this, that the State of California has provided a provision where professional limited liability partnership entities such as financial constancies are required to provide security either in the form of professional liability insurance coverage or by maintaining funds in a bank or a trust. Insurance certificates or bank statements may be necessary to provide evidence of existence of this security. This requirement ensures that limited liability partnerships maintain resources that will be used to compensate clients and outsiders from losses exerted on them by the business.
Ownership Restriction
These requirements calls for Limited liability partnerships that provide professional services such financial consultancy to have at least one partner with a professional qualification in the field of finance (Government of California, 2011). This means that education and professional certificates that provide evidence of professional qualification in the field is also necessary for the start up of this business.
Conclusion
Limited liability partnership is a form of business organization that incorporates the features of general partnerships and corporations. On the one hand, the LLPs have the limited liabilities status, just like corporations, which shield the partners from the debts and other liabilities of the business. On the other hand these business entities enjoy flexible methods of profit distribution, pass-through tax payment and flexible organizational structures just like the general partnerships. It is the advantages provided by these features that contributed to the decision of selection these form of business.
References
Cathleen H. (2010). Forming a California Limited Liabilty Company. May 10, 2011. Retrieved from http://www.southerncaliforniabusinesslawmonitor.com/business-formation/forming-a-california-limited-liability-partnership/
Clarkson K.W, et al (2009). Business Law Texts and Cases: Legal, Ethical, Global and E-Commerce Environments. USA, Cengage Learning
Friedman J. (2000). Limited Liability Companies: Large Company Theory and Small Firm. The Modern Law Review. 63 (3), 317- 354
Government of California (2011). Corporation Code Section 16951- 169762. May 10, 2011. Retrieved from http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=16001-17000&file=16951-16962
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