The first step in creating an FLP or LLC is the preparation and filing of an application with the Secretary of State. An applicant files a Certificate of Limited Partnership to form a new limited partnership or Articles of Organization to form a limited liability company. The applicant has to submit a proposed name for the partnership or LLC. This name should be cleared with the Secretary of State’s office because the filing will not be accepted if the name is similar to another name on file. The application for LP or LLC requires naming a registered agent, which is the name and address of a person (or company) who is authorized by the partnership to receive service of process if the partnership is sued. Any family member residing in the state of registration can be designated as the agent. If you form a partnership or LLC in a state other than Florida you will have to find a company that will, for a fee, serve as registered agent.
The partnership Certificate of Organization includes names and addresses of all general partners of the partnership. The names of the limited partners are not required. LLC Articles of Organization include the name of the LLC’s manager. The member’s names are not required. Since these documents are a matter of public record, the names of the general partners of a partnership and the manager of an LLC will be publicly available, but the limited partners’ and LLC members’ identity will be private except as disclosed on the annual federal tax return.
A partnership is legally formed when the Secretary of State’s office receives the properly filled out Certificate of Limited Partnership and a filing fee. Likewise, an LLC is legally formed when the Secretary of State receives properly completed Articles of Organization and filing fee. You may need a certified copy of the Certificate of Limited Partnership or LLC Articles to open a bank or brokerage account or for the purchase or sale of real estate in the name of the LLC or partnership. You should consult your CPA about obtaining a tax identification number for your new entity.
The Partnership Agreement and LLC Operating Agreement
After the limited partnership or LLC is filed and legally created the partners (LLC members) should next prepare a written agreement expressing their business arrangement and the provisions which govern their business and legal relationship. That agreement is called a limited partnership agreement in the case of a limited partnership and an operating agreement in the case of a limited liability company. The agreements contains similar provisions and serves the same purpose in both types of legal entities.
The partnership and LLC agreement express the financial and legal agreements among the participants such as the general partner or manager’s duties, matters on which the vote of the partners or members is required, each person’s initial capital contribution and obligation to contribute additional capital over time, each person’s share of partnership capital and profits, and all other matters affecting the relations between the partners.
The partnership or operating agreement should also certain key provisions designed to accomplish your estate planning or asset protection goals. Taken together, these provisions must contain specific legal restrictions on the transfer of investment interests to ensure that the interests are worth as little as possible if seized by a creditor and also must provide that a creditor can never get involved in internal partnership or LLC affairs. These provisions that diminish value and transferability of limited partnership and LLC member interests are unique and essential to a properly structured partnership or LLC agreement.
In most states, a partnership or LLC agreement has substantial flexibility on key financial provisions. For instance, an agreement may provide different people with varying amounts and priority of distributions, preferences and values on liquidation, varying voting rights, varying duties to contribute services and money to the entity, and every other contract governing the operation and management of a financial arrangement among people.