A Limited Liability Partnership is a very interesting type of business structure. Limited Liability Companies already combine the ease of running a partnership with the protection of a corporation, and the IRS originally ruled that LLCs would be taxed as partnerships. So what is the difference between a Limited Liability Partnership and a Limited Liability Company? And which one would be the best structure for your company?
What is a Limited Liability Partnership (LLP)?
We’ll answer the easiest question first. An LLP is very similar to an LLC – both protect the company’s owners from lawsuits and debtors, and both have a pass-through tax structure, meaning anything the company earns passes through it, directly to the owners, without being subject to any corporate income tax. However, a Limited Liability Partnership offers an extra bit of liability protection to each partner. So, just like in a Professional Corporation, the other partners in an LLP will not necessarily be liable for the consequences stemming from another partner’s actions.
Do all states recognize LLPs?
Yes, though the laws recognizing LLPs vary from state to state. The majority of the states have adopted the Revised Uniform Partnership Act, which includes a provision for LLPs stating ‘An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership.’ In layman’s terms, that essentially means that the company, and not the individual partners, is responsible for any obligations stemming from contracts or torts. The states that haven’t adopted the RUPA instead opted for their own laws to recognize LLPs, but all follow the same basic pattern.
Who forms LLPs?
For the most part, the Limited Liability Partnership is reserved for those in professions licensed by the state. So dentists, doctors, lawyers, or accountants are typically the types of professionals that opt for an LLP. And, by and large, that is simply due to the fact that LLPs protect all of the partners from the consequences stemming from the negligence of one. Some states, like California, Nevada, New York, and Oregon, have actually enacted laws limiting the LLP structure solely to those working in certain licensed professions, however these states are in the minority. Still, it is wise to research your state’s laws before taking the steps to form your own Limited Liability Partnership.
How do I form an LLP?
As we said above, first research your state’s laws to see if your state limits LLPs to certain professions. If you are able to form an LLP, the process is very similar to that of forming an LLC. You normally need a registered agent, an address, a business name with a designator indicating that the company is an LLP, and the names and addresses of the founding partners. You file your paperwork with the state, pay a small fee, and after a few weeks the state either approves or denies your application. If approved, your partnership is legally turned into a Limited Liability Partnership.
Thinking about forming a Limited Liability Partnership, but aren’t sure where to start? We’re happy to help! Just give MyCorp a call at 1-877-692-6772 or leave a comment below!