Business Law
June 2015
Formation of an Arizona Partnership
Choosing which type of legal entity to form is one of the most important decisions to make when starting a business. This article examines the
partnership, which is less popular than a corporation or limited liability company but still has many benefits.
Tina L. Vannucci
A general partnership is formed whenever
two or more people associate to run a business for profit, and it is governed by
the Arizona Revised Uniform Partnership Act. Regardless of whether you file any
official documents or enter into any agreements to create a partnership, the
default entity for two or more people who associate to run a business is a
general partnership.
Formation
A limited partnership is formed by
filing a Certificate of Limited Partnership with the Arizona Secretary of State.
The Certificate of Limited Partnership sets forth the name of the limited
partnership, the Arizona office address, the name and Arizona address of the
agent for service of process, the name and address of each general partner, and
the dissolution date.
In order to form a limited partnership,
there must be at least one general partner and one limited partner, but there is
no maximum limit on the number of limited or general partners that can be
involved in this entity.
Liability
Although a general partnership is a
distinct legal entity that can own property and other assets and can incur debt
and other liabilities, each partner is jointly and severally liable for all
obligations of the partnership. General partnerships are not as commonly used
due to this unlimited liability for the acts of your partners. If a general
partnership is chosen, a general partnership agreement setting forth the rights
and obligations of each partner should be entered into, even though such an
agreement is not required to form such an entity.
Limited partners, who generally
contribute money but have little control over day-to-day operations and
management, are not liable for the obligations of the partnership. However, if a
limited partner becomes involved in the operations and assumes management
responsibilities, they may lose their limited liability protection.
The general partner will manage the
partnership, have control over the day-to-day operations, and remain jointly and
severally liable for the obligations of the partnership. Again, although not
required, a partnership agreement setting forth the rights and obligations of
each partner is recommended.
Limited Liability Partnerships
Limited liability partnerships (LLP) and
limited liability limited partnerships (LLLP) combine some of the liability
protections from a corporation or limited liability company (LLC) with the
administrative ease of a partnership. The only difference between an LLP and an LLLP is the type of partnership formed before electing limited liability for the
general partners.
An LLP is a general partnership with a
limited liability election and an LLLP is a limited partnership with a limited
liability election. An LLP and an LLLP maintain the management difference
between general and limited partners but modify the liability of general
partners. In other words, general partners will manage an LLP or LLLP, but they
are not subject to unlimited joint and several liability for the obligations of
the partnership. Both an LLP and an LLLP allow for multiple general partners and
multiple limited partners to be subject to limited liability.
In order to create a LLP or an LLLP, a
Statement of Qualification must be filed with the Arizona Secretary of State.
The Statement of Qualification sets forth the name of the partnership, a
statement of status, the partnership formation date, the address of the
partnership, and the name and address of the agent for service of process. LLPs
and LLLPs are also required to file an annual report with the Arizona Secretary
of State setting forth the name of the partnership, the office address, and the
address for the agent for service of process.
Foresight
Based on our experience, it is important
for individuals wanting to form a partnership to decide at the outset how the
affairs of the business and the individuals involved will be addressed. Having
such foresight will assist the partnership when dealing with any unanticipated
matters or disputes.
Related article:
Business Entity Formation in
Arizona
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