A limited liability partnership (LLP) is similar to an LLC in that all partners have limited liability for business debts, but many states this liability protection is less than what LLCs or corporations receive. Several states also impose mandatory insurance requirements or the use of an escrow account on the owners of an LLP. Further, some states limit the use of LLP to professionals, those occupations that require a license to do business.
The LLP structure is especially appealing to types of businesses that were prohibited in the past from forming an LLC or corporation, such as accountants and attorneys. The costs of transferring those existing general partnerships to an LLC or corporation now where it is allowed can be very costly. However, for most small businesses, an LLC or S Corporation may be a better choice.
Advantages of an Limited Liability Partnership
- LLPs allow for pass-through taxation.
- All partners are not held personally responsible for the debts and liabilities of the business.
- Partners have more flexibility in structuring the management with less formal requirements and annual paperwork.
- Easier conversion from a general partnership to an LLP than to a LLC or corporation.
To create an LLP the proper formation documents must be filed with the appropriate state agency and the necessary state filing fees paid.