7 Advantages and Disadvantages of a Limited Liability Partnership

There are many different ways to form a business, and one of the more common ways is through a limited liability partnership, or LLP. This type of business structure that involves two or more people coming together to own and operate a single business. There is a wealth of benefits to be enjoyed and reasons that people choose to go the limited liability partnership route for their business. Tax benefits and limited liability are two of the biggest. While there are many great reasons to choose an LLP, there are also some significant draw backs to choosing this structure.

Advantages of a Limited Liability Partnership

1. As Many Owners As Needed
One of the greatest things of a limited liability partnership is that there is no limit on the amount of owners that can be involved with the business. This is great because it evenly spreads out the amount of liability that each partner can have if something where to go wrong with the business.

2. Much Less Liability
Just as the name suggests, limited liability partnerships limit your liability. Since there are multiple owners involved in the business all of the risks of the business are spread out and made much smaller than if a single person was responsible for the business on their own. This generally refers to legal issues, like if the company was sued for any reason.

3. Tax Benefits
Another one of the great benefits of operating underneath an LLP is how you file taxes. The partnership itself doesn’t have to file taxes as a business, which provides great breaks for the company. However, each individual partner must file a variety of different tax forms regarding the business.

4. Great Flexibility
Flexibility is a defining characteristic of limited liability partnerships. Each partner in the business has the ability to decide how much they want to contribute and how much of a partner they truly want to be in the business. They are also not obligated to participate in business meetings or consultations with anyone that they do not feel the need to.

Disadvantages of a Limited Liability Partnership

1. Not All States Are On Board
Due to the tax benefits and tricky workings of an LLP, some states do no allow them to form or operate in their region. Another big problem is that many states do not recognize LLP’s as a legal business.

2. Additional Taxes
Just like some states do not recognize, the majority of the rest pose large tax limits on limited liability partnerships. These taxes can come in as additional taxes when registering as well as issues with personal tax filing.

3. Less Business Credibility
Another huge problem with limited liability partnerships is the fact that other business and many consumers or clients do not see them as a credible business. Corporations gain much more respect and are generally more successful than LLPs.

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Important Facts About Limited Liability Partnerships

  • The person who is responsible for handling taxes can be held personally responsible for any unpaid taxes from the business.
  • Each partner has a “duty of care” position in the business. If something where to happen in their area, they are held personally and legally responsible.
  • In order to set up an LLP each partner must set up a limited liability partnership agreement and register it in their state.
  • In Canada only lawyers and accountants are permitted to operate underneath a limited liability partnership.
  • The first LLP in Japan was permitted in 2006.
  • The United States is the only country to allow each state to determine their own laws on the forming of LLPs.
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