Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP)

Limited Liability Partnerships (LLP) are structured as a typical partnership (including favorable tax pass-through treatment), but a LLP also offers limited liability protection to the owners that is similar to that of corporations.


Overview

Main Guide: Starting a Business.

Limited Liability Partnerships (LLP) are structured as a typical partnership (including favorable tax pass-through treatment), but a LLP also offers limited liability protection to the owners that is similar to that of corporations.

Individual partners enjoy limited liability to protect their personal assets from other partners' actions or negligence. However, all partners are responsible for most obligations of the company as a whole. All partners are therefore liable for outstanding loans, expenses, partnership real estate, and vehicles owned or leased by the entity. Limited liability protection does not apply to any partner fraud or employee negligence. Additionally, should a partner be a first-hand witness of another partner's criminal deeds or negligence, the partner witness will lose their limited liability protection.

LLPs can potentially be used in many business fields, but it is primarily used by lawyers, accountants, and architects. In some U.S. States (California, New York, Oregon, and Nevada), LLPs can only be formed for such professional uses.


Taxes

Main Guide:Taxes

In a limited liability partnership the taxes are "passed through" to the partners. This means that the entity does not file any taxes. Rather, the profits and losses of the business are passed through to the partners who report it on their personal income tax return.


Pros & Cons of LLP

Pros:

  • Partners are shielded from liability for the misconduct of other partners.
  • LPs can generate capital investments by adding more limited partners.

Cons:

  • Limitation on business type. In some states, LLPs may only be formed for the purposes of practicing a licensed profession (ex: law firm, architecture firm, accounting firms).
  • Taxation. The LLP’s income and losses are passed through to the partners, who then report it on their personal tax return. The LP’s income is not taxed at the business level.