There are certain advantages and disadvantages of limited liability partnerships (LLP). This is where some or all the partners will have limited liabilities, depending on the jurisdiction. Thus, it exhibits elements of corporations and partnerships. For this reason, a partner should not be liable or responsible for the negligence or misconduct of another partner.
But, what does it imply if you are going to get into a new business venture? Well, here are some pros and cons of this type of partnership.
List of Pros of Limited Liability Partnership
1. Liability Depending on Investment
It is considered advantageous to be in a partnership that has limited liabilities. In this option, a partner still has liabilities but it will be dependent on his or her investment. Hence, a partner will make investments in partnership for the partnership interest. When the partner will lose over his or her investment after being sued, he or she won’t be liable for the debt.
2. Enjoys Tax Benefits
A member of a limited partnership will equally enjoy the same benefits in taxes just as a general partnership does. So, the income that has been earned in a general partnership will pass through via the personal return of the individual partner. Therefore, there are no partnership income that are separately taxable.
3. Separation of Legal Entity
Limited partnerships are also separate legal entities. They have the capacity to own a property and to sue in order to protect its interests. Nevertheless, the protection of the LLP will not be able to shield its partners if they are doing wrongful actions.
List of Cons of Limited Liability Partnership
1. More Documentation Required
If you are going to consider a limited liability partnership, you will be faced with tons of paperwork and documentation. So, if you don’t want to be in a middle of it, you might just pass on this type of partnership and move on to another option.
2. One General Partner
All limited liability partnerships have one general partner, at least. He or she is still severally or jointly liable for all the debts of the company. For this reason, it is imperative that not all partners have equal liabilities when you choose to venture into an LLP business option.
3. Self-Employment Taxes to Pay
If you go into a family LLP, all of the partners will have to pay the employment taxes in accordance to their incomes. This is because they are all employees of the business. This will count even if they have little or no active role in the LLP. Taxes will include the combination of self-employment, Medicare, and Social Security taxes.
4. Regular Meetings and Documents to Comply
When you want to venture into an LLP, you should be able to conduct regular meetings. Likewise, it will be your responsibility to comply with the business laws by filing certain documents.
Not all businesses can operate as LLP. This is because some states limit the LLP formation to certain types of work. So, before you venture into an LLP, it might be rewarding to consider the pros and cons of limited liability partnership and the type of business that can operate in your area.