Limited Liability Partnership Overview

A Limited Liability Partnership (LLP) is a legal structure that operates similarly to a partnership, yet has elements of a corporation. An LLP allows its members to actively participate in the partnership’s business and also protects the personal liability of a partner from other members’ acts of incompetence or negligence to the extent of his or her investment in the LLP. Each partner is taxed on his or her proportionate share of the profits (or shares in his or her portion of the losses) of the business.

Lawyers, accountants and architects (or similar type professions) often find the LLP attractive, as it shields partners from liability, as well as benefiting from full partnership tax treatment. State laws vary regarding LLPs, and not all states recognize this corporate form.

Limited Liability Partnership Frequently Asked Questions

What are the advantages to setting up a Limited Liability Partnership?

One advantage to an LLP is that an LLP does not have to follow corporate procedures such as holding annual meetings and keeping meeting minutes. Another advantage to an LLP is that it is not a separate taxable entity. An LLP passes its profits through to its partners, who pay taxes on their proportion of the LLP’s income. Thus, double-taxation (at the corporate level and at the shareholder level) is avoided while at the same time allowing partners to be actively involved in the business.

What are the disadvantages to setting up an Limited Liability Partnership?

One disadvantage to the LLP is that it is a relatively new corporate form, the legal requirements for LLPs vary among states and not all states currently recognize the LLP structure. Another disadvantage to an LLP is that property contributed to the LLP is owned by the partnership (unless otherwise stated in the agreement) and the contributing partner is not entitled solely to returns from the property contributed. A third disadvantage to an LLP is that it has more restrictions on transfers and investments compared to the corporation structure and is sometimes regarded as a less preferable corporate form.

Do I need an attorney to set up an Limited Liability Partnership?

An LLP may be formed by filing the appropriate documentation with your state. However, since each state has its own application process, consulting a lawyer to determine the proper application method for your state is recommended.

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Other Limited Liability Partnership Information Sources

Limited Liability Partnership Definition
Source: Wikipedia.com
URL: http://en.wikipedia.org/wiki/Limited_liability_partnership

Partnerships
Source: IRS.gov
URL: http://www.irs.gov/businesses/small/article/0,,id=98214,00.html

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