What is an LLP?

For many people, owning a business is a lifelong dream. If you are finally at the point where you plan to make your dream of owning a business a reality, you have many important decisions ahead of you. The first, and most important, decision is what type of legal structure to use for your business. Business entities fall into three basic categories—sole proprietorship, partnership, and corporation. Within the partnership category, there are then a number of sub-categories, such as the Limited Liability Partnership (LLP). A better understanding of what an LLP is, as well as some of the major advantages and disadvantages to choosing an LLP, may help you narrow down the options for your new business venture.

There are a number of factors that should be considered when choosing a business entity, including, but not limited to:

• Complexity of the chosen entity
• Tax implications for the owners and the business
• Liability for the owners
• Ability to grow the company

Traditionally, a corporation offered the owners protection from personal liability but exposed them to a greater tax liability. Conversely, a partnership offered the ability to avoid the double taxation found in a corporation but did not shield the owners from personal liability. Over time, however, a number of “hybrid” structures developed that combined benefits of both corporations a partnerships. One of those hybrids is the Limited Liability Partnership, or LLP.

An LLP protects the partners from liability for the company’s debts. It also protects against the debts or liabilities of the other partners, a benefit that a traditional unlimited partnership does not provide to the partners, and the primary reason why many professionals (doctors, lawyers, accountants, etc.) choose this type of business. Another difference between an LLP and a traditional partnership is that an LLP is not required to have a “general partner,” whereas a traditional partnership does require a general partner. One potential disadvantage to an LLP is that a “limited partner” typically does not play an active role in the business. Instead, a limited partner contributes financially to the business but does not make day to day decisions for the company.

A Limited Liability Partnership also offers tax benefits to the partners by allowing for “pass-through” taxation. As the name implies, pass-through taxation allows all taxes to pass through the company to the partners, unlike in a corporation, where the company is taxed first and then the profits paid to the owners are taxed a second time.

If you are planning to start or expand a business and are deciding which business entity to use for your business, contact a Pennsylvania corporate formation attorney as soon as possible to discuss your options. Call Curley & Rothman, LLC at 610-834-8819 today to schedule your confidential consultation.