Pros and cons of limited liability partnerships

Updated July 19, 2017

Limited liability partnerships (LLPs) allow business owners to protect themselves from having to pay debts their businesses may accumulate. They are different from limited partnerships because both partners in a limited liability partnership may control the day-to-day proceedings of the business. LLPs are typically used by professional groups like law and accounting firms because they offer liability protection for more than one working partner.

Financial liability protection

The most significant reason to enter into a limited liability partnership is to protect your personal wealth. If your business falls into debt and you are without liability protection, creditors can sue you for not only the business's money, but your own as well.

Multiple partner protection

The primary advantage of an LLP over a limited partnership is that the LLP allows more than one partner to work directly for the business. A limited partnership requires that one partner be labelled the "general partner" who controls the day-to-day activity of the business, and the other to be the "limited partner" who simply provides an investment and perhaps some advice. The general partner in a limited partnership is still personally liable for any of the debt the business may have. The LLP ensures that each partner is only liable for his own debts, and any debt he may have caused.

Tax advantages

The LLP preserves a simple system for tax purposes. Income tax is figured as if the LLP were a single entity, which means that the amount that each partner pays for taxes can be split any way they see fit. All profits and losses are similarly passed directly to and divided by the partners.

Unilateral actions

Because all partners in an LLP can make formal business decisions, the entire partnership or firm can be held accountable for the negligence of a single member.

Difficulty sharing assets

Any time a member of the LLP contributes any money or other asset to the partnership, ownership of that asset legally transfers to all members. The partner is unable to demand that property back unless it was stated somewhere in the partnership agreement.

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About the Author

Mike Smith began writing in 2007. He wrote for and edited his school's literary magazine and wrote film and music reviews for the school newspaper. He has also been published in "Indianapolis Monthly." Smith graduated from Franklin College in 2010 with a Bachelor of Arts in English.