What is a Limited Liability Partnership?

A limited liability partnership (LLP) is a business structure that combines the elements of a business partnership and a corporation. Limited liability partnerships allow partners to work collaboratively to decide their liability for the actions of other partners.

Similar to a traditional business partnership, an LLP is formed by two or more individuals coming together to share profits and losses. However, unlike a standard partnership, business owners in an LLP share limited liability for the debts and obligations of the company. In other words, each partner is only responsible for his or her own actions, debts and obligations. Consequently, they are not jointly and severally liable for debts and obligations of the business as a whole. 

Key Takeaways

• A limited liability partnership (LLP) is a business arrangement that combines the elements of a business partnership and a corporation. 
• In limited liability partnerships, every partner has a limited personal liability for the debts of the partnership.
• The laws and regulations relating to limited liability partnerships vary from state to state. 

Benefits of Limited Liability Partnerships (LLPs)

While deciding what type of business structure is the most appropriate for your needs and circumstances, it is important to consider the various advantages of forming an LLP. A few examples of its benefits include:

• Flexibility: LLPs are considered one of the most flexible types of business structures. This is due to the fact that the operation of the company is determined by written agreement between its members.
• Tax Benefits: Depending on the jurisdiction, an LLP may provide a number of tax advantages. For example, LLPs often offer the ability to pass profits between partners without paying corporate taxes.
• Liability Protection: The personal assets of the partners in an LLP are protected since they are only responsible for their own debts that they incur firsthand.

Limited Liability Partnership (LLP) vs. Limited Liability Company (LLC)

Both limited liability partnerships (LLPs) and limited liability companies (LLCs) are common business structures in the United States that provide legal protection to its owners. Nonetheless, there are key differences between these two arrangements. 

One of the main differences between an LLP and an LLC is the way that profits and losses are split between the relevant parties. In an LLC, profits and debts can be allocated in any way that the members agree upon. On the other hand, in an LLP, profits and losses are generally shared among the partners in proportion to their ownership stakes in the company.

The amount of personal liability in an LLP and an LLC also differs. In an LLP, each individual partner is held liable for their own actions, debts and obligations that they personally incur. In regards to an LLC, the owners of the business generally have limited liability over the business’s debts and obligations.

In summary, one should carefully consider the specific needs and goals of a business when deciding whether to establish an LLP or LLC. A professional business attorney will be able to advise you regarding which type of arrangement better suits your circumstances.

Bottom Line

Limited liability partnerships (LLPs) are a unique type of business arrangement that is especially common amongst professionals such as accountants and lawyers. If you are interested in establishing an LLP, please consult with an experienced business law attorney. Since LLP regulations vary depending on the jurisdiction, it is important to ensure that the LLP is formed in compliance with all relevant laws and regulations.