Why choose a limited liability partnership (LLP)?
Typically only
business owners in professions that require a state license in order to
practice, such as accountants, architects, attorneys, chiropractors, doctors,
dentists, etc., are allowed to form LLPs. An LLP is similar to an LLC: all
partners have limited liability for business debts, but be aware that in many
states this protection is less than what LLCs or corporations receive.
Advantages of a limited liability partnership
LLPs typically offer these advantages:
- Limited liability protection. Partners are not held personally responsible for business debts and liabilities (the LLP does not protect against liability for partners’ actions, however).
- Pass-through taxation. No tax is paid at the business level. Profits or loss are reported on the partners’ tax returns, and any tax due on business income is paid at the individual level.
- Conversion from general partnership. LLPs typically offer easier conversion from a general partnership to an LLP than to a LLC or corporation.
- Flexible management. Partners have more flexibility in management structure and can determine which partners are responsible for the day-to-day operations.
- Few formal requirements. LLPs have fewer formal requirements and annual paperwork than corporations.
How is an LLP formed?
In order to register a business as an LLP,
formation documents must be filed with the appropriate state agency, and
necessary filing fees paid.
Key Benefits
Unlike the limited partnership (LP) all partners in an LLP are typically not personally responsible for the debts and liabilities of the business or practice. LLPs more closely resemble LLCs in that regard; however, LLPs are often required to have insurance policies to cover personal liability.
Business Type Comparison Table