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Limited Liability Partnerships (LLPs)

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The term limited liability partnership (“LLP”) is often used in public discourse- often erroneously. What exactly is an LLP, and what are its features compared to a traditional, general partnership? This article will attempt to answer that question and provide you with some basic understanding of LLPs.

Please note that this article is intended to only cover the general aspects of LLPs- the majority of states currently allow for the LLP form, and state laws vary widely, so applicable state laws for specifics relating to your particular situation will need to be consulted.

Advantages of an LLP

In general, an LLP is a type of partnership in which some or all partners may have limited liability, meaning that partners are not liable for damages resulting from negligence, fraud, malpractice or similar misconduct committed by another partner. This is an essential difference between LLPs and general (unlimited) partnerships. This feature thus provides an important advantage that the corporate form provides for shareholders.

It should be noted, partners in an LLP are still personally liable for any negligence, fraud, malpractice or similar misconduct that they themselves commit.

Another advantage of an LLP is that LLP profits are distributed among the partners for taxation purposes under pass-through rules, and thus are not subject to double-taxation.

Finally, an advantage of LLPs compared to LLCs is that in states that impose franchise taxes on operations, LLPs will not have to pay such taxes, whereas LLCs may have to, depending upon state law.

Remember, whether an LLP is an advantageous form of business for you will depend on your particular circumstances. What appears to be an advantage in one situation may actually become a disadvantage in another. Therefore, you need to consult with a business and tax attorney before deciding whether an LLP is the most convenient form for your particular business.

Certain Aspects of LLPs

LLPs are often utilized by service providers, such as physicians, attorneys, architects, accountants and similar professionals. Articles of LLP must be filed with the Secretary of State of applicable states that allow for LLP formation.

When an LLP is formed, states either require the firm’s name to include the term “limited liability partnership” or “registered limited liability partnership”, or applicable abbreviations, in order to properly inform the public as to its business form.

Some Aspects of Various LLP Statutes

As noted above, statutes differ widely, and should be examined for your particular situation.

Despite the general LLP limited liability rule, certain states may scale back this feature to some degree. For example, in some states, LLP partners may still be jointly and severally liable for matters relating to contractual liability of the LLP.

In general, some states provide for transformation of an unlimited partnership into an LLP. A number of states also allow for only majority- and not unanimous consent- of partners of a general partnerships to become an LLP.

Contact Sherayzen Law Office NOW for Legal and Tax Help For Your Business

The formation of partnerships, limited liability partnerships and other business and tax matters can involve complex issues and knowledge of applicable state and Federal laws, and this article only attempts to provide a very general background information that should not be relied upon in making the determination of your specific situation. Rather, you should contact Sherayzen Law Office for legal help with this issue. Our experienced business and tax firm will guide you through the complex web of rules concerning partnership, LLP, LLC, corporate formation and taxation matters.

Business Lawyers Minneapolis: Preparing for Initial Consultation II

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In previous article, I discussed what type of information you should bring to your Minneapolis business attorney. In this essay, I shift the focus toward the second part of the preparation which is about what type of questions you need to ask your business lawyer.

Usually, the questions that you want your Minneapolis business lawyer to answer should, at the very least, cover the following four areas:

1.    Cost and Billing

The most common and important issue is the cost of the case as well as the manner in which you will be billed.  Unless this is a flat-fee case, you should not expect your business attorney to give you a precise amount of money you will need to spend on your case.  Usually, a Minneapolis business lawyer will give you an estimate, which, in the end, may or may not correspond to the actual cost of the case.

In terms of the manner of billing, you are likely to billed per hour in most business litigation and large business transaction matters. Small contracts and certain common-place business services are often subject to a flat fee with an additional hourly fee charged in case of further modifications as requested by a client.

2.     Time

The next area you should discuss with your Minneapolis business attorney is how long the case will need to be conducted.   The estimates here are likely to vary significantly.   While it is often fairly easy to predict when an employment contract will be finished, it is much harder to estimate an amount of time a business litigation case may take (especially if an extensive motion practice is anticipated).

3.    Participation

Ask your Minneapolis business lawyer about who will handle your case – i.e. whether the attorney will handle it personally or turn it over to his associates.  When you are dealing with a large law firm, you run the risk that the attorney with whom you are having the initial consultation will not be the one handling your case, especially if you are a small business or an individual.  Due to common division of labor in large law firms, it is very likely that the case will be turned over to inexperienced associates whose work will be only reviewed by the attorney who conducted the initial consultation.

If, however, you are hiring a small firm or a solo practitioner, you are very likely to avoid this problem and your case will be handled from the beginning through the end by your experienced business lawyer who is probably an owner of the law firm and personally responsible for the case.

4.     Percentage of Practice

The last question is how much time per month, on the average, your Minneapolis business attorney devotes to his business practice.  At a minimum, your business lawyer should devote about 25% of his practice to business law.

Conclusion

While these four questions do not represent a complete list of questions you should ask your business attorney, they are likely to provide that minimum background necessary for the review of a retainer agreement with your Minneapolis business lawyer.

Sherayzen Law Office can help you with your business issues, whether you want to establish a new business, create a legal structure for an existing one, draft an employment contract or an Independent Contractor Agreement, engage in complex business planning, litigate a business dispute, and so on.

Contact Sherayzen Law Office to discuss your business case with an experienced business attorney!

Business Lawyers Minneapolis: Legal Fee Issues

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When you are about to hire a business lawyer in Minneapolis, you need to discuss the following top three legal fee issues:

1. Payment Structure

There are three main models of payment that lawyers use: hourly fee, contingency fee, and flat fee. The hourly fee is the most common form of business lawyer compensation in Minneapolis because it is fairly simple and, yet, flexible – the business attorney is paid only based on the time he spends on the case. If you are paying your business lawyer by the hour, the agreement should set out the hourly rates of the business attorney and anyone else in this attorney’s office who might work on the case.

A contingency fee, where a Minneapolis business attorney takes a percentage of the amount the client wins at the end of the case, is very rarely used by business attorneys in Minneapolis. In the unlikely case that this latter type of fee arrangement is used, the most important issue to understand is whether the business lawyer deducts the costs and expenses from the amount won before or after you pay the lawyer’s percentage. Obviously, you will pay more in attorney fees if your business lawyer deducts the litigation costs based on the latter scenario (i.e. after you pay the lawyer’s fee).

Finally, in a flat fee arrangement, you pay an agreed-upon amount of money per job/case. For example, you pay $5,000 to your business attorney to organize your corporation with all of the corresponding corporate documents. While a flat fee arrangement is possible in a small project, it is generally disliked by business lawyers in Minneapolis because it often lacks the necessary flexibility to account for the client’s individual legal situation. Usually, some sort of an additional payment arrangement is built into such fee agreements to make sure that the balance between the client’s legal needs and the business attorney’s fees is maintained.

Remember,out-of-pocket expenses (e.g. long-distance calls, mailing costs, photocopying fees, lodging, etc.) and litigation costs (such as court filing fees) are usually billed to you in addition to your business lawyer’s fees.

2. Retainer

Most business lawyers in Minneapolis require their client to pay a retainer. Retainer can mean two different fee arrangements. First, retainer may be the amount of money a client pays to guarantee the lawyer’s commitment to the case. Under this arrangement, the retainer is not a form of an advance payment for future work, but a non-refundable deposit to secure the lawyer’s availability. Second, a retainer is simply the amount of money a business attorney asks his client to pay in advance. In this scenario, the lawyer usually deposits the retainer in a client trust account and withdraws money from it for the work completed according to the fee agreement. The fee agreement should specify the amount of the retainer and when the lawyer can withdraw money form the client trust account (usually, on a monthly basis).

3. Timing of Billing

Usually, business attorneys in Minneapolis bill their clients on a monthly basis. Sometimes, however, when the project is not large, the fee agreement will specify that you will be billed upon completion of the case. In a flat-fee scenario, it is likely that the client will be obligated to pay either a half or even the whole amount immediately as a retainer. It is wise for a client to insist in paying some part of the fee upon completion of the case to retain a degree of control over the case completion.

Conclusion

Generally, before you sign the fee agreement, business lawyers in Minneapolis will discuss with you many more topics than what is covered in this article. The three issues explained here, however, are crucial to your understanding of how the business relationship with your Minneapolis business attorney will work. Before you sign the fee agreement with your business lawyer in Minneapolis, you should ask at least these three questions and make sure that the answers are complete and to your satisfaction.