Typically only professions that require a state license in order to practice (such as accountants, doctors, attorneys, architects, chiropractors, dentists, etc.), are allowed to form LLPs. An LLP is similar to an LLC since partners are not personally responsible for business debts or liabilities. But an LLP does not protect against liability for partners’ actions. Also be aware that in many states liability protection is limited when compared to LLCs or corporations.
Pros and Cons of LLP Setup
Pros of an LLP:
Limited liability protection. Partners are not held personally responsible for business liabilities or debt (they are not protected from negligence or malpractice).
Eliminate double taxation. Profits and losses are reported on the partners’ tax returns, and any tax due is paid only once at the individual level.
Flexible management. Partners have flexibility in management structure and can determine which partners are responsible for the day-to-day operations.
Fewer ongoing formalities. LLPs face much less paperwork and fewer formalities than corporations.
General partnership conversion. LLPs offer easier conversion from a general partnership to an LLP (when compared to an LLC or corporation).
Cons of an LLP:
Assumed liabilities. A partner in an LLP is personally liable for his or her own negligence, or the negligence of an employee working under the partner's direct supervision.
Restricted availability. Each state has different laws regarding LLPs, but they are often limited to certain types of businesses. Some only allow law, accounting, architecture and similar firms to enter into a Limited Liability Partnership.
Limited life. Unlike LLCs, where the companies have perpetual life, an LLP can be dissolved once a partner leaves the business. This can be prevented, however, if there is a partnership agreement to buy out the ownership stake of the partner who leaves.
How to Start a Limited Liability Partnership
To setup a Limited Liability Partnership, formation documents must be filed and all state fees must be paid. Let us help you get started >
