{"id":11655,"date":"2018-10-04T19:49:45","date_gmt":"2018-10-04T19:49:45","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/?post_type=chapter&#038;p=11655"},"modified":"2024-05-07T16:49:13","modified_gmt":"2024-05-07T16:49:13","slug":"limited-liability-partnership-llp","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/chapter\/limited-liability-partnership-llp\/","title":{"raw":"Limited Liability Partnership (LLP)","rendered":"Limited Liability Partnership (LLP)"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Define limited liability partnerships (LLP) as a form of business<\/li>\r\n \t<li>Discuss the advantages and disadvantages of LLPs<\/li>\r\n<\/ul>\r\n<\/div>\r\nA <b>limited liability partnership<\/b> (<b>LLP<\/b>) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations.\u00a0In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence.\r\n\r\nIn an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. Some states require one partner to be a\u00a0\"general partner\" with unlimited liability, meaning he\/she\u00a0is\u00a0ultimately responsible for the debts of the business and for any lawsuits such as personal injury or breach of contract. Unlike corporate shareholders, the partners have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who, as \"corporate\" individuals, then have the legal responsibility to manage the corporation in the corporation's best interest. An LLP also has\u00a0a different level of tax liability compared with that of a corporation.\r\n\r\nAs in a partnership or limited liability company (LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding the problem of \"double taxation\" often found in corporations.\r\n<h2>Forming an LLP<\/h2>\r\n<span style=\"color: #333333;\"><strong>Verify Eligibility Status<\/strong>.\u00a0In the United States, each individual state has its own law governing the\u00a0formation of LLPs. Although found in many business fields, the LLP is an especially popular form of organization among professionals such as lawyers, accountants, and architects. In California, New York, Oregon, and Nevada, LLPs can only be formed for such professional uses.<\/span>\r\n\r\n<span style=\"color: #333333;\"><strong>Choose a Business Name.<\/strong>\u00a0 When selecting a name for the LLP, generally the name (1) must be different from an existing LLP in your state, and (2) most states require the inclusion of \u201cLimited Liability Partnership,\u201d \u201cLLP,\u201d or another related abbreviation at the end of your business name.\u00a0<\/span>\r\n\r\n<span style=\"color: #333333;\"><strong>Draft a Limited Liability Partnership Agreement.<\/strong>\u00a0Although not required in every state, this agreement is strongly recommended.\u00a0A limited liability partnership agreement should define each partner\u2019s role and responsibilities. It should clearly define the partners\u2019 assets and liability limitations. The agreement should also outline capital contributions, distribution of profits and losses, buyout agreements, expulsion or addition of partners, etc.<\/span>\r\n\r\n<span style=\"color: #333333;\"><strong>File a Certificate of Limited Liability Partnership. <\/strong>The drafting of an LLP agreement is optional; however, all LLPs must file a certificate of limited liability partnership (sometimes called a certificate of registration as a limited liability partnership).\u00a0The certificate of limited liability partnership is more general than the limited liability partnership agreement, as it does not detail responsibilities, capital contributions, buyouts, etc. The certificate requires the listing of your business\u2019s name and address, the names and contact information of the partners, and information on the registered agent of the LLP.\u00a0<\/span>\r\n\r\n<strong>Obtain Licenses and Permits.<\/strong> Once your business is registered, you must obtain business licenses and permits. Regulations vary by industry, state, and locality.\r\n\r\n<strong>Announce Your Business<span style=\"color: #333333;\">.<\/span><\/strong><span style=\"color: #333333;\"> Some states, including Arizona and New York, require the extra step of publishing a statement in your local newspaper about your LLP formation.<\/span>\r\n<h2>LLP Taxes<\/h2>\r\nThe tax treatment for LLPs is similar to general partnerships, as discussed earlier. Profits and losses are passed through to the partners so the partners reflect them on their individual tax return.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/9e1336ee-9746-4b2c-aa6a-afa8ff926f9f\r\n\r\n<\/div>\r\n<h2>Advantages of an LLP<\/h2>\r\n<ul>\r\n \t<li><span style=\"color: #333333;\"><strong>Single Taxation<\/strong>.\u00a0The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. <\/span><\/li>\r\n \t<li><span style=\"color: #333333;\"><strong>Limited Liability<\/strong>. The LLP\u00a0structure protects individual limited partners from personal liability for negligent acts of other partners or employees not under their direct control. In addition, individual partners are not personally responsible for company debts or other obligations.<\/span><\/li>\r\n \t<li><span style=\"color: #333333;\"><strong>Flexibility<\/strong>.\u00a0LLPs\u00a0provide the partners\u00a0flexibility in business ownership. Partners have the ability to decide how they will individually contribute to business operations, both financially and physically. Management duties can be divided equally or unequally based on the experience of each partner. Partners who have a financial interest in the company can elect not to have any authority over business decisions but still maintain ownership rights based on their percentage interest in the company.<\/span><\/li>\r\n<\/ul>\r\n<h2>Disadvantages of an LLP<\/h2>\r\n<ul>\r\n \t<li><strong>Duratio<span style=\"color: #333333;\">n<\/span><\/strong><span style=\"color: #333333;\">. The business life of a LLP is unstable, because the partnership can be dissolved by agreement of the partners or upon the death or withdrawal of a partner. A limited liability partnership agreement can prevent dissolution if a partner dies or withdraws.\u00a0<\/span><\/li>\r\n \t<li><strong>Limitation of Formation.<\/strong>\u00a0Unlike general partnerships, limited liability partnerships are not recognized as legal business structures in every state. Some states limit the creation of a limited liability partnership to professionals, such as doctors or lawyers.<\/li>\r\n \t<li><strong>Partner Control.<\/strong> If an LLP is formed without a limited liability partnership agreement, individual partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners can be problematic, to say the least.<\/li>\r\n<\/ul>\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/32a010f2-38a8-4d2f-b1df-81c1cf1129eb\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Define limited liability partnerships (LLP) as a form of business<\/li>\n<li>Discuss the advantages and disadvantages of LLPs<\/li>\n<\/ul>\n<\/div>\n<p>A <b>limited liability partnership<\/b> (<b>LLP<\/b>) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations.\u00a0In an LLP, one partner is not responsible or liable for another partner&#8217;s misconduct or negligence.<\/p>\n<p>In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. Some states require one partner to be a\u00a0&#8220;general partner&#8221; with unlimited liability, meaning he\/she\u00a0is\u00a0ultimately responsible for the debts of the business and for any lawsuits such as personal injury or breach of contract. Unlike corporate shareholders, the partners have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who, as &#8220;corporate&#8221; individuals, then have the legal responsibility to manage the corporation in the corporation&#8217;s best interest. An LLP also has\u00a0a different level of tax liability compared with that of a corporation.<\/p>\n<p>As in a partnership or limited liability company (LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding the problem of &#8220;double taxation&#8221; often found in corporations.<\/p>\n<h2>Forming an LLP<\/h2>\n<p><span style=\"color: #333333;\"><strong>Verify Eligibility Status<\/strong>.\u00a0In the United States, each individual state has its own law governing the\u00a0formation of LLPs. Although found in many business fields, the LLP is an especially popular form of organization among professionals such as lawyers, accountants, and architects. In California, New York, Oregon, and Nevada, LLPs can only be formed for such professional uses.<\/span><\/p>\n<p><span style=\"color: #333333;\"><strong>Choose a Business Name.<\/strong>\u00a0 When selecting a name for the LLP, generally the name (1) must be different from an existing LLP in your state, and (2) most states require the inclusion of \u201cLimited Liability Partnership,\u201d \u201cLLP,\u201d or another related abbreviation at the end of your business name.\u00a0<\/span><\/p>\n<p><span style=\"color: #333333;\"><strong>Draft a Limited Liability Partnership Agreement.<\/strong>\u00a0Although not required in every state, this agreement is strongly recommended.\u00a0A limited liability partnership agreement should define each partner\u2019s role and responsibilities. It should clearly define the partners\u2019 assets and liability limitations. The agreement should also outline capital contributions, distribution of profits and losses, buyout agreements, expulsion or addition of partners, etc.<\/span><\/p>\n<p><span style=\"color: #333333;\"><strong>File a Certificate of Limited Liability Partnership. <\/strong>The drafting of an LLP agreement is optional; however, all LLPs must file a certificate of limited liability partnership (sometimes called a certificate of registration as a limited liability partnership).\u00a0The certificate of limited liability partnership is more general than the limited liability partnership agreement, as it does not detail responsibilities, capital contributions, buyouts, etc. The certificate requires the listing of your business\u2019s name and address, the names and contact information of the partners, and information on the registered agent of the LLP.\u00a0<\/span><\/p>\n<p><strong>Obtain Licenses and Permits.<\/strong> Once your business is registered, you must obtain business licenses and permits. Regulations vary by industry, state, and locality.<\/p>\n<p><strong>Announce Your Business<span style=\"color: #333333;\">.<\/span><\/strong><span style=\"color: #333333;\"> Some states, including Arizona and New York, require the extra step of publishing a statement in your local newspaper about your LLP formation.<\/span><\/p>\n<h2>LLP Taxes<\/h2>\n<p>The tax treatment for LLPs is similar to general partnerships, as discussed earlier. Profits and losses are passed through to the partners so the partners reflect them on their individual tax return.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p>\t<iframe id=\"assessment_practice_9e1336ee-9746-4b2c-aa6a-afa8ff926f9f\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/9e1336ee-9746-4b2c-aa6a-afa8ff926f9f?iframe_resize_id=assessment_practice_id_9e1336ee-9746-4b2c-aa6a-afa8ff926f9f\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<h2>Advantages of an LLP<\/h2>\n<ul>\n<li><span style=\"color: #333333;\"><strong>Single Taxation<\/strong>.\u00a0The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. <\/span><\/li>\n<li><span style=\"color: #333333;\"><strong>Limited Liability<\/strong>. The LLP\u00a0structure protects individual limited partners from personal liability for negligent acts of other partners or employees not under their direct control. In addition, individual partners are not personally responsible for company debts or other obligations.<\/span><\/li>\n<li><span style=\"color: #333333;\"><strong>Flexibility<\/strong>.\u00a0LLPs\u00a0provide the partners\u00a0flexibility in business ownership. Partners have the ability to decide how they will individually contribute to business operations, both financially and physically. Management duties can be divided equally or unequally based on the experience of each partner. Partners who have a financial interest in the company can elect not to have any authority over business decisions but still maintain ownership rights based on their percentage interest in the company.<\/span><\/li>\n<\/ul>\n<h2>Disadvantages of an LLP<\/h2>\n<ul>\n<li><strong>Duratio<span style=\"color: #333333;\">n<\/span><\/strong><span style=\"color: #333333;\">. The business life of a LLP is unstable, because the partnership can be dissolved by agreement of the partners or upon the death or withdrawal of a partner. A limited liability partnership agreement can prevent dissolution if a partner dies or withdraws.\u00a0<\/span><\/li>\n<li><strong>Limitation of Formation.<\/strong>\u00a0Unlike general partnerships, limited liability partnerships are not recognized as legal business structures in every state. Some states limit the creation of a limited liability partnership to professionals, such as doctors or lawyers.<\/li>\n<li><strong>Partner Control.<\/strong> If an LLP is formed without a limited liability partnership agreement, individual partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners can be problematic, to say the least.<\/li>\n<\/ul>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p>\t<iframe id=\"assessment_practice_32a010f2-38a8-4d2f-b1df-81c1cf1129eb\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/32a010f2-38a8-4d2f-b1df-81c1cf1129eb?iframe_resize_id=assessment_practice_id_32a010f2-38a8-4d2f-b1df-81c1cf1129eb\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-11655\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Practice Questions. <strong>Authored by<\/strong>: Robert Danielson. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">Public domain content<\/div><ul class=\"citation-list\"><li>Limited Liability Company. <strong>Provided by<\/strong>: SBA. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.sba.gov\/starting-business\/choose-your-business-structure\/limited-liability-company\">https:\/\/www.sba.gov\/starting-business\/choose-your-business-structure\/limited-liability-company<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><li>Limited Liability Company. <strong>Provided by<\/strong>: IRS. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/limited-liability-company-llc?_ga=1.165252543.1621083263.1478627137\">https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/limited-liability-company-llc?_ga=1.165252543.1621083263.1478627137<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":17,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"pd\",\"description\":\"Limited Liability Company\",\"author\":\"\",\"organization\":\"SBA\",\"url\":\"https:\/\/www.sba.gov\/starting-business\/choose-your-business-structure\/limited-liability-company\",\"project\":\"\",\"license\":\"pd\",\"license_terms\":\"\"},{\"type\":\"pd\",\"description\":\"Limited Liability Company\",\"author\":\"\",\"organization\":\"IRS\",\"url\":\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/limited-liability-company-llc?_ga=1.165252543.1621083263.1478627137\",\"project\":\"\",\"license\":\"pd\",\"license_terms\":\"\"},{\"type\":\"original\",\"description\":\"Practice Questions\",\"author\":\"Robert Danielson\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"add89d16-1de6-4af5-a4bc-4cddf4e82e3a, 767c599d-5936-4e2e-8cb3-409ffbad60b8, 46c3495f-86e1-4c68-84c3-3d3604957995","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-11655","chapter","type-chapter","status-publish","hentry"],"part":86,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/11655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/users\/17"}],"version-history":[{"count":7,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/11655\/revisions"}],"predecessor-version":[{"id":15517,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/11655\/revisions\/15517"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/parts\/86"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/11655\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/media?parent=11655"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=11655"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/contributor?post=11655"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/license?post=11655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}