How To Form a Florida Partnership

If you are starting a new business, one of the first decisions you will make is choosing an appropriate business entity for the enterprise.  Businesses in Florida can register as a corporation, limited liability company (LLC), partnership, or sole proprietorship.  Each entity has different advantages and disadvantages, so it is important to choose the right one for your new business.

Many entrepreneurs choose to start their business as a partnership.  They are simple to set up, benefit from pass-through taxation and don’t have complex reporting requirements.

This guide will explain how partnerships work in Florida and identify the four types of registered partnerships that are available in this state.  We’ll also share a short guide on the process of forming a partnership in Florida.

This guide will help you understand how Florida partnerships are formed, their advantages, and the different options available to them.  If you have any further questions about forming a partnership in Florida, contact FL Patel Law PLLC at (727) 279 5037.

 

What is a Partnership?

A partnership involves two or more persons co-owning a business.  Each partner will make contributions to the business, usually in the form of property, money, or labor.  All partners are expected to share in the profits and losses that the business makes.

Types of Florida Partnerships

There are four different types of partnerships available in Florida — General Partnerships, Limited Partnership (LP), Florida Limited Liability Partnership (LLP), and Limited Liability Limited Partnership (LLLP).

All four are considered pass-through entities, which means profit from the business is passed through to each partner, who then claims it on their individual tax return.  Like other entities, they are required to file an annual report for the business with the IRS, which is used to determine how much profit or loss the business made.  The IRS will then use this information to verify that each partner has claimed the correct amount of income from the business on their personal tax return.

Because Florida does not collect income tax from residents, any income that the business generates for each partner will be taxed at the federal level only.

The other key consideration that you must make before choosing a business entity is personal liability.  Personal liability is how closely your personal assets and debts are related to the business.  If you have a high level of personal liability, your personal assets may be affected if the business fails to do well.  You may be forced to pay off the business’s debts with your personal assets.  Having a high level of personal liability also means that lawsuits against the business may affect you personally.

Business owners avoid personal liability by using a limited liability partnership (LLP) or a Florida Limited Liability Limited Partnership (LLLP).  Using an LLP or LLLP ensures that your business debts or legal troubles will not affect you personally.

There Are Many Advantages to Establishing Your Business as a Partnership, Including:

• You can share setup costs and pool the talents of many people
• More capital will be available for the business
• Start-up costs are lower compared to forming a C Corporation or S Corporation
• Your business will be able to borrow more money
• Excellent employees can be promoted to partners
• Limited external regulation
• It is easy to change your legal structure at a later date if your situation changes
• You can set up flexible income splitting arrangements between partners

Of Course, There Are Also a Few Disadvantages, Including:

• Only certain entities enjoy limited liability.
• If it is not a limited liability partnership, each partner is liable for the debts accumulated by the business. They may also legally liable if there are any lawsuits against the business.
• Partners may disagree with one another occasionally.
• If partners join or leave, business assets will have to be valued, which can be expensive.

Here are some more details about the four types of Florida partnerships:

Florida General Partnership

A general partnership is the association of two or more persons to carry out a for-profit business.  It is the simplest form, with no formal statutory arrangements for formation in Florida.

Each partner is considered to have an equal share in the business and equal legal status.  As such, they will receive an equal share of the business’s income and liabilities.  Each partner is also able to act as a legal representative of the business.

Advantages of a Florida General Partnership

The main advantage of a general partnership is that they are inexpensive to establish.  There are no organizational formalities, which allows you to set up very quickly. They don’t even need to register with the State of Florida.

Another advantage is that they are pass-through entities.  This means that there is no tax on profits at the partnership level.  All profits are passed onto the partners of the business, who will claim this additional income on their personal tax returns.

Pass-through entities avoid double taxation, a problem affecting C Corporations.  Double taxation occurs when the corporation pays tax on corporate income and shareholders pay tax again on the dividends they receive.

Disadvantages of a Florida General Partnership

The primary disadvantage is that it does not provide limited liability protection for the partners.  Any debts that are accrued by the business are the responsibility of the partners.  This means the personal assets of partners are affected if the business goes heavily into debt.  This disadvantage is avoided by forming the business as a limited liability partnership (LLP) or corporation.

As there is no personal income tax in Florida, partners in a Florida general partnership will not have any state-level income tax liability from the profits they make.  However, partners may have to pay state income tax if their state of residence is outside of Florida.

Florida Limited Partnership (LP)

A limited partnership consists of at least one general partner and one limited partner.  They have a different legal status to general partners.  A limited partner can specify their maximum personal liability to the business.  They can contribute a limited amount of capital and are not held responsible for the business’s actions, obligations, or debts.

Limited partners will still benefit from the partnership’s profits, but they are more protected if the business runs into trouble.  While partners in a general partnership have complete authority over the business, most limited partners do not.  Limited partners do not actively manage the business and they do not have the authority to act on behalf of the business.

In Florida, the Revised Uniform Limited Partnership Act (RULPA) provides an absolute liability shield for limited partners.  That means they cannot be held legally responsible if there is legal action taken against the business.  General partners in a limited partnership are still held legally liable for the actions of the business and any debts it accumulates.

Advantages of a Florida Limited Partnerships

The primary advantage of a Florida limited partnership is that the limited partner is protected from personal liability.  This liability shield makes investing in a business a much safer prospect.  This has the flow-on effect of making it easier for the business to find new investors.

The types of limited partners that a Florida limited partnership can take on are also quite varied.  A limited partner can be a person, corporation, LLC, association, or another partnership.  You can also have multiple general partners and limited partners, creating an arrangement that makes the company easier to manage and attractive for investors.  Florida limited partnerships also offer incredible flexibility when it comes to adding or removing partners.  

Their final advantage is how easy it is to transfer ownership without affecting the business.  Limited partners can transfer their economic interest in the business without causing the partnership to dissolve.  The general partner will retain all of their rights even after a limited partner leaves the company — which is different from general partnerships.  Florida limited partnerships allow the limited partner to combine some personal liability protection with pass-through taxation.

Disadvantages of Florida Limited Partnerships

The main disadvantage is that the general partner does not have the same personal liability protections as their limited partners.  If they really require this kind of protection, it may be worth organizing the business as an LLP.

Another disadvantage is that the limited partner may feel like they have less power.  However, Florida law does allow for limited partners to have more rights granted to them in the partnership agreement.  There are also more filing requirements compared to a general partnership.

Florida Limited Liability Partnership (LLP)

An LLP offers limited liability protection for all partners.  It protects the assets of all partners from the debt obligations of the business and from any legal action that arises.

Advantages of a Limited Liability Partnership

The main advantage is the protection that limited liability offers for the partners.  None of the enterprise’s partners will be personally liable for partnership obligations.  This arrangement can make it easier to attract investors and general partners.

A limited liability partnership offers the same level as a corporation but combines it with the advantages of pass-through taxation.  A limited liability partnership will also have fewer reporting requirements and regulations compared to a corporation.  It will be cheaper to start compared to a corporation and it avoids the double taxation problem.

Disadvantages of a Limited Liability Partnership

The main disadvantage of a Florida LLP is that it is more difficult to transfer ownership of the business.  Individual partners also have the ability to commit the business to business agreements, which may not be ideal for some partners.  The final disadvantage is that business partners living outside of Florida may be asked to pay state income tax on the profits the business generates.

Florida Limited Liability Limited Partnership (LLLP)

A Florida limited liability limited partnership combines the attributes of an LLP and LP.  All partners enjoy limited liability, which protects their assets from business debts and legal action.  It also allows some partners to be general partners and others to be limited partners.  This arrangement provides a lot of flexibility in terms of management structures and the same protections that a corporation or LLP enjoys.

Advantages of a Florida Limited Liability Limited Partnership

An LLLP has all of the advantages of an LLP and LP, including limited liability protection, pass through taxation, flexible arrangements, avoidance of double taxation and the ability to attach investment more easily.

Disadvantages of a Florida Limited Liability Limited Partnership

The main disadvantages include limited partners having less control, more filing requirements, and non-residents of Florida potentially paying income tax on profits.

How to Form a Florida Partnership

Starting a Florida partnership is a relatively straight-forward process.

Choosing a Business Name

It is important to choose a name that is memorable and will be easy to use in a marketing campaign.  In Florida, a partnership’s name must be a unique name and not already in use.  You can check use the Florida Department of State, Division of Corporations website to check if a particular business name is available.

If the name is available, you should perform an Internet search to see if it is already in use by another business, in Florida or elsewhere.  You may wish to also check if a suitable domain name is available for the business and if it has been registered as a trademark.

Some types of partnerships must have a special phrase used in the name to identify it.  For example, limited liability partnerships must end with “Registered Limited Liability Partnership,” “Limited Liability Partnership, “LLP.”, ”L.L.P.,” or “RLLP.”

Drafting a Certificate of Limited Partnership

If you are forming an LLLP or LP, you will need to draft a certificate of a limited partnership to be filed with the Florida Department of State.  It must contain the following:

• Name of the partnership
• Office location
• Name, address, and signature of registered agent
• Name, address, and signature of registered partners
• Limited liability limited partnership election (required if you will be an LLLP)
• Effective date

This form can be submitted via mail or email.

Protection of Name as a Trademark Service Mark

You may wish to register your partnership’s name as a trademark or service mark.  Visit the Florida Division of Corporations website to learn more.  You may have to also register your trademark or service mark federally using the Trademark Electronic Application System (TEAS).

Drafting a Partnership Agreement

Although a written partnership agreement is not required by Florida law, it is highly advisable to have one.  The kinds of details in this agreement will include:

• The partnership’s name
• The names of the partners involved in the enterprise
• The agreement of partners to form one of the four types of partnerships listed above
• The date business begins
• If the business is an LP, LLP, or LLLP, a signed statement indicating that all partners agree to this arrangement
• A list of the capital contribution of each partner
• Provision for return of contributions
• How profits and losses will be distributed
• Details of the authority that the general and limited partners have
• Managerial details including who will manage the books, which accountant will be used and so on
• How assets will be liquidated if the partnership is dissolved

The Revised Uniform Partnership Act (RUPA) sets out some rules for the items that can be included in the partnership agreement.  It is usually a good idea to obtain assistance from a lawyer when drafting any contract.

Thank you for reading How To Form A Florida Partnership.  If you have any questions, contact FL Patel Law PLLC at (727) 279 5037.