What is an LLP?
The limited liability partnership (LLP) is a fairly recent business entity that has only existed in the U.S. since the early 1990s. Under an LLP, all partners have limited liability, meaning that they cannot be held liable for the acts of other partners or employees. This is a major difference between an LLP and a general partnership, in which partners can be held liable for the actions of others within the company.
Advantages
There are a few major advantages to choosing the LLP structure over another business entity. Some of the positive aspects of an LLP include:
- Profits are not double-taxed as they are in a corporation. The profits are divided among the partners and then taxed.
- A partner can only be held personally liable for his or her own actions, such as an act of negligence, or for the actions of an employee who is directly supervised by the partner.
- A partner cannot be held liable for the negligent or wrongful actions of another partner.
Of course, there are also potential downsides to founding a limited liability partnership.
Disadvantages
While an LLP has tax benefits and liability benefits that make it a more desirable option than a corporation or general partnership, there are also a few disadvantages to this type of entity, such as:
- When a partner contributes assets to an LLP, these assets are owned by the LLP and may not be returned to the partner, unless otherwise stated in the partnership agreement.
- A partner may still be liable for a negligent employee, if the partner directly supervises the employee.
- A single partner can enter the LLP into a business contract without the permission of the other partners.
- If an LLP drops a partner or experiences the death of a partner, the LLP is automatically dissolved according to state law.
Before forming your business, it is important to carefully research and consider all of your legal options.
Contact Us
This relatively new business entity could be an ideal structure for your business, depending on the particulars of your situation. To consult with a business formation expert about choosing the LLP structure for your business, contact Texas Legal Entities today at 512-472-2431.
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