Advantages of Limited Liability Partnerships

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Advantages of Limited Liability Partnerships

For over 20 years, limited liability partnerships (LLPs) have been a popular business form for licensed professionals. LLPs are business entities created by state statutory law for doctors, lawyers, dentists, architects, and accountants. Below are some reasons why LLPs are popular formation choices.

Limited Legal Liability

The biggest benefits of forming a LLP are the limited legal liability and the flexible management roles. Unlike general partnerships, a LLP does not expose its partners to unlimited legal liability. In other words, if someone sues that LLP, the partners will not be indefinitely liable for that amount. Their liability will be limited to the amount that they contributed to the LLP for its formation. However, this limited legal liability shield will be broken if the lawsuit stems from an intentional act of the partner.

Flexible Roles for Partners

A LLP has extremely flexible management roles for the partners. The roles are defined in the LLP agreement that the partners draft themselves. Under the structure, each partner has the right to manage the LLP and have the right to choose how much management that they want. Thus, partners can have a very active role or even act as a silent in the LLP.

Ease of Formation

State laws provides a clear structured process for forming LLPs. Thus, they are relatively ease to form. Generally, it requires the partners to fill out a registration form and file it with their secretary of state. Nonetheless, the registration may require the partners to put in writing their roles and responsibilities, and financial contributions and debts distributions.

Pass-Through Tax

Another big benefit of LLPs is that it has pass-through tax such that it avoids double taxation. LLP partners will only pay their own personal income taxes, while the LLP will not be taxed as a business entity.

Consulting an Attorney

Since LLP formations do have legal consequences and require partners to define their roles, it is best to have a business law lawyer draft these agreements. Any mistakes in the registration process will delay formation process, or worse, subject the partners to unlimited personal liability.

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Last Modified: 04-13-2015 02:23 PM PDT

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