Published On: Fri, Jan 31st, 2020

Limited Liability Partnerships: Pros and Cons

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Because they offer increased protection and security against creditors, many people are interested in limited liability partnerships (LLPs), which have enjoyed great success since their creation and have become particularly popular in the last twenty years. These partnerships limit a potential creditor’s claims against the company to partnership assets alone — that is, a creditor to the company may not go after one of the partners to repay any partnership debts. In addition to other advantages such as this, LLPs also have several disadvantages over other corporate forms.

Limited Liability

LLPs are named for one of their primary qualities: offering limited liability. Limited liability means that each person is responsible to the company for only as much money as they give to the company and no more. This is in comparison to personal liability, where a partner may be liable for partner debts and creditors may go after a partner’s private, non-partnership assets. Because LLPs are limited liability, partners enjoyed increased financial protections and are only responsible for as much money as they put into the business.

Partnership

The second half of Limited Liability Partnerships is another major advantage. Partnerships, unlike corporations, allow partners to manage directly. Corporations, on the other hand, have shareholders, stock and a Board of Directors who make decisions regarding the corporation and may direct day to day tasks. Depending on the type of corporation, partnerships may allow much more close control and direct management than a corporation. Note that some states limit partnerships; for instance, states prohibit non-lawyers from being partners in a law firm.

Taxation

Limited Liability Partnerships: Pros and Cons

Taxation is a major advantage of an LLP over a corporation. LLPs are taxed directly through the partnership. With corporations, corporation’s income is taxed. The income that is then passed on to the directors or shareholders is taxed again at that level, making each dollar that flows through the corporation subject to two different taxes. Limited liability partnerships avoid such double taxation schemes.

Warning – LLP: Limited, not “No” Liability; Consult a Lawyer

Some states do not restrict partner liability in an LLP, meaning that at times a partner may be personally liable above and beyond money invested in the partnership. For instance, some torts, such as those intentionally committed, and some crimes will fall squarely into the personal liability category. In other states, even intentional torts may be covered by limited liability. This is one reason it is important to consult a lawyer regarding whether a Limited Liability Partnership is the best business form for you.

Further, LLPs may be restricted to certain professions. Often these are licensed professions such as architects, attorneys, and accountants. Other states may allow more professions to assume the LLP corporate form. It is important to check with a lawyer knowledgeable in business law to help you determine which corporate form is best.

About the Author

- I am an internet marketing expert with an experience of 8 years.My hobbies are SEO,Content services and reading ebooks.I am founder of SRJ News andTech Preview.

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