LLP Business: What Is a Limited Liability Partnership?
A limited liability partnership is a type of business partnership that offers fuller protection for investors/owners. It eliminates the need for a general partner, and makes the spread of financial exposure more equitable among all partners.
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What Is a Limited Liability Partnership?
A limited liability partnership is an agreement between business partners who each have limited liability. They all retain control over the company without having to give up their liability protections.
Limited Liability Partnership Structure
A limited liability partnership does not have a general partner, a partner that controls the reins of the business and holds all of the responsibility. Instead, a group of partners retain their limited liability, meaning they cannot be held responsible for the wrongdoings of the business or other partners. They can still be held liable for their own actions, but they are shielded from the business’s actions as a whole.
Limited liability partnerships typically rely on all the partners’ reputations and shared clientele. All the partners typically work together to grow and run the business. LLPs are typically reserved for attorneys, accountants, and similar professions.
Limited Liability Partnership Advantages and Disadvantages
Here are some of the advantages of a limited liability partnership:
- The biggest advantage is that all partners have liability protection.
- You might have an easier time recruiting other partners because of liability protection. This means more investors and clients.
- LLPs have increased partner flexibility. Partners can move in and out of the business without affecting the entity itself.
Of course, there are some disadvantages:
- You will have to file with the state annually in order to operate as an LLP.
- LLPs are not always recognized across state lines. If you are planning on doing a lot of business across state lines, that could be a problem.
- Some states only allow certain professions to become LLPs. Check before you file with your state if your profession is allowed.
LP vs LLP
In a limited partnership, there is at least one general partner and one limited partner. The general partner holds all the liability and controlling power. The limited partner does not have any decision-making power, but does have limited liability.They are basically an investor.
In an LLP, all the partners hold decision-making power and also have limited liability.It’s the best of both worlds, as long as you want to have a say in running the business.
LLP vs LLC
A limited liability company (LLC) is similar to a LLP, but it is made of “members” instead of partners. These members can be individuals or just corporations. LLCs can even appoint outside individuals to run the company for them, so there is a lot flexibility.
The biggest difference between the two is in relation to liability. In a LLP, partners are still personally liable for business debts, meaning that creditors can come after their personal assets. In an LLC, members are not personally liable.They can lose their initial investment, but creditors cannot seize members’ personal assets in an LLC.
Depending on the goals of your business and the composition of your business partners, a LLP can definitely be an advantageous option. Permitted that you are allowed to create a LLP in your state and you have the cash for filing fees, it can be the best of both worlds. However, be sure to consider all your options.
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Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.
This post was updated February 28, 2019. It was originally published November 3, 2018.