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.