Fitzgibbons Law Offices - Pinal County Lawyers

520-426-3824

 
 
 
Tina Vannucci, Casa Grande Business Attorney

 

Fitzgibbons Law Offices
1115 E. Cottonwood Lane
Suite 150
Casa Grande, AZ 85122

 

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.

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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