For entrepreneurs, it is not unusual to go into business with a partner. Perhaps you have a work colleague with whom you have a long-standing relationship, and you happen to share a vision for a business. Maybe you are thinking about starting a business with a friend or members of your family. Regardless of the specific circumstances that have brought you to this point, if you are considering forming a partnership, you are going to want to do a bit of research. A good starting point on your knowledge journey can be understanding Limited Liability Partnership advantages and disadvantages.
In a Limited Liability Partnership (LLP), as with any business structure, there are going to be pros and cons. By having an understanding of what you can expect in an LLP, you can make a more informed decision about whether or not it is right for you.
What is a Limited Liability Partnership?
Generally speaking, there are three different types of partnerships. There is what is called “General Partnership,” which occurs any time two or more people go into business together. These can be informal arrangements, often operating on a verbal or handshake agreement. There are also “Limited Partnerships,” in which some partners have limited roles while reporting to a general partner who has the bulk of the management responsibility.
In a Limited Liability Partnership, the concept of a general partnership is in play, but it is coupled with the concept of “limited liability.” What this means is that should one partner commit malpractice that results in legal action, the other partners cannot be found liable. This accountability structure makes LLPs particularly popular among licensed professionals, including doctors, lawyers, accountants, and architects.
Limited Liability Partnership Advantages
One of the biggest advantages to creating an LLP, apart from its liability protections, is the “pass-through” status that you are granted by the Internal Revenue Service (IRS). This means that income generated by the business itself is not taxed, it instead flows through to the partners who then pay taxes on their personal income.
LLPs are also generally less expensive and involve less paperwork than, say, corporations or Limited Liability Companies (LLCs). They also allow for a more flexible management structure that allows all partners to participate in managing the business.
Limited Liability Partnership Disadvantages
One main drawback to LLPs is that they are not available in all states. You will want to see what is specifically available in your local jurisdiction. Conversely, in some states such as California and Nevada, licensed professionals can only form LLPs–they are excluded from the option of an LLC.
On an individual partner level, an LLP can also be daunting from a liability standpoint. If you are found to be negligent, you can be faced with the bulk of the consequences, receiving little to no financial support from your business.
Form Your LLP Online Today
If you have considered the pros and cons of an LLP and decided that it is right for your business, we can help. We offer simple-to-use forms for establishing LLPs in all states where they are available. To learn more, take a few minutes to explore our site, or contact us by phone or email today.