A limited liability partnership (LLP) allows you to enjoy partnership benefits without assuming full liability. A Texas partnership attorney can help you determine if an LLP suits your needs or if another business structure works better.
Partnerships and Limited Partnerships
General Partnerships
Understanding an LLP starts with knowing how general partnerships work. In a general partnership, two or more people co-own a business without forming a corporation or LLC. Each partner has joint and several liability. This means if one partner incurs a debt, the other partners share responsibility.
For example, if one partner borrows money for the business but cannot repay it, all partners must cover the debt. This shared risk can pose challenges, especially if trust or communication breaks down.
Limited Partnerships
A limited partnership introduces a distinction between general partners and limited partners. The general partner makes business decisions and manages operations. Limited partners invest money and share in profits but have little say in daily operations.
The key benefit for limited partners is limited liability. They are not responsible for debts or obligations incurred by the general partner. However, they must remain passive in the business to retain this protection.
What Makes a Limited Liability Partnership Unique?
An LLP combines features of general and limited partnerships, along with elements of an LLC. Lawyers, accountants, and other professionals often form LLPs to reduce personal liability.
Equal Control, Limited Risk
In an LLP, all partners share control of the business unless they agree otherwise. Unlike a limited partnership, there are no "general" or "limited" partners. However, the big advantage lies in liability protection. Partners in an LLP are not responsible for debts caused by another partner's actions. This setup shields individual partners from personal financial harm if a colleague faces a lawsuit or incurs debt.
For example, if one partner mishandles a client case and gets sued, the other partners' assets remain protected.
Ideal for High-Liability Professions
Many professionals choose LLPs because of their liability protection. Professions like law, accounting, and medicine involve high risks of lawsuits. Forming an LLP ensures personal assets stay safe while maintaining control over business operations.
Benefits of a Limited Liability Partnership
Liability Protection
An LLP offers significant protection. Partners only face liability for their own actions, not those of others. This feature provides peace of mind, especially in industries prone to legal disputes.
Flexibility in Management
Unlike a limited partnership, all partners in an LLP can participate in decision-making. You can also customize roles and responsibilities through an operating agreement.
Tax Benefits
LLPs enjoy pass-through taxation, meaning the business itself does not pay taxes. Instead, profits and losses pass through to individual partners, who report them on their personal tax returns. This structure avoids the "double taxation" faced by corporations.
Professional Credibility
Operating as an LLP can enhance your reputation. Clients and customers may see an LLP as a sign of professionalism and stability.
Is an LLP Right for You?
Choosing the right business structure depends on your goals, industry, and risk tolerance. While LLPs offer clear advantages, they may not fit every situation. For example, if you plan to operate in multiple states, check local laws. Not all states recognize LLPs or offer the same liability protections.
Consult a Texas Partnership Attorney Today
Starting an LLP requires careful planning and legal expertise. A Brazos County partnership attorney can help you weigh the pros and cons, file paperwork, and draft an operating agreement tailored to your needs.
Contact an experienced Texas business lawyer to discuss your options. Call us at 979-703-7014 to schedule a consultation. Whether you're starting an LLP or exploring other business structures, we'll guide you every step of the way.
