Advantages & disadvantages of limited liability partnerships

Updated April 17, 2017

Limited liability partnerships are relatively new creations that commonly are used for their financial protections. With a general partnership, individuals may be personally responsible for a partner's actions. Limited liability partnerships, or LLPs, limit the amount that may be recovered in a lawsuit to partnership assets alone. This led to the rapid success of the LLP. In the early 1990s, only a few states allowed them; now, every state and the District of Columbia allow them. By combining aspects of partnerships and corporations, limited liability partnerships offer several advantages and disadvantages from both.

Limited Liability

Limited liability partnerships, not surprisingly, offer limited liability for partners. That means each partner is responsible only for the amount of money he has given or promised to the partnership, and each partner is not "personally liable." By limiting liability to partnership liability, the only money a person suing the partnership could win is partnership money--not a partner's personal savings. This makes limited liability partnerships more secure and less financially risky than a partnership.

No Double Taxation

Unlike corporations, limited liability partnerships are taxed directly through the partnership. This avoids corporate double taxation, where income from a corporation and distributed profits are both taxed.


The ability to directly manage a partnership is a significant advantage of a limited liability partnership. In a corporation, shareholders hold stock in the company and elect a board of directors, who then make executive decisions for the company. Corporations also may have company directors doing more mundane, daily business. Limited liability partnerships avoid the unnecessary extra steps by allowing each partner to directly own or control a portion of the partnership.

Some Personal Liability

While some states restrict liability of partners in a limited liability partnership, some do not. For example, some states limit liability only for negligent civil wrongdoings ("torts") but allow personal liability for intentional torts or criminal actions. Other states restrict liability, even for intentional torts--but there may be some situations where personal liability may arise.

Some Restrictions

Some states restrict the types of professions that may form a limited liability partnership. Traditionally, professional fields of study, such as attorneys, architects and accountants, are included. Some states limit limited liability to these traditional fields.

Liable for Partner's Actions

The partnership will be liable for actions taken by a partner in furtherance of the partnership. This means that financially, being a member of a limited liability partnership may be less secure than merely being a shareholder of a corporation.

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