Pros & cons of LLP vs. partnership

Updated April 17, 2017

A limited liability partnership's (LLP) main advantage over a general partnership is that it protects one business partner from the adverse actions of another. Limited liability partnerships are typically best suited for professional groups such as accountants or lawyers. General partnerships equally share the responsibility for any liabilities that occur as a result of business operations. In a partnership, the personal assets of the business owners are also at risk if professional obligations are not fulfilled.

Limited Personal Liability

A major pro of an LLP is that business partners are not usually putting their personal assets at risk as each partner receives limited personal liability protection. If another partner is sued, the other partners are not held legally responsible. The personal assets of each partner, including his home and personal vehicle are protected in the event of a lawsuit. An additional pro or benefit of an LLP is that it is not taxed as a corporation. Profits from the partnership are reported by each individual partner accordingly and are only taxed once as personal income.

Responsibility for Business Infractions

A major con of the LLP is that the limited liability protection does not include fraud committed by any employees of the organisation. Another con is that each partner is still held legally responsible for any debt that is related to the business, its expense obligations, and property. If one partner commits an illegal act and another is witness to it, he might also be held legally responsible. In an LLP, partners may obligate the others to certain business agreements without obtaining prior consent. General business property is recognised as being owned by the partnership and not any particular partner. An additional con is that some states are not able to recognise LLP's.

Partnership Formation

A major pro of general partnerships is that they are easy to form. Partnerships do not usually require the filing of any formal paperwork. Partners may choose to draft a written agreement, but a verbal agreement works just as well. It is not as expensive to form since filing fees are not usually required. Renewal paperwork and fees also do not have to be filed and paid. This makes a partnership somewhat less expensive to maintain in the long run.

No Limited Liability

A major con of a partnership is that all of the partners are held legally responsible for debt and lawsuits. If one partner is sued or commits a wrongful act, the other might be required to pay to resolve the debt or lawsuit. Personal assets, including savings accounts and homes are fair game if the business is unable to cover its debts. Another disadvantage of general partnerships is the business will usually end if one partner decides to leave. When the business dissolves, debts and obligations must be fulfilled by both partners and assets distributed accordingly.

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About the Author

Helen Akers specializes in business and technology topics. She has professional experience in business-to-business sales, technical support, and management. Akers holds a Master of Business Administration with a marketing concentration from Devry University's Keller Graduate School of Management and a Master of Fine Arts in creative writing from Antioch University Los Angeles.