A limited liability partnership – commonly abbreviated as LLP – is a business structure wherein two or more people form a partnership and work together while limiting their personal liability to their investment in the business.
In this post, we have answered the most commonly asked questions about limited liability partnerships in Texas.
How Does a Limited Liability Partnership Work?
In an LLP, two or more individuals join to establish a for-profit business with the purpose of achieving their common goals. The partners are required to run the business in compliance with the terms of the partnership agreement. By pooling their resources, the partners in an LLP can lower their operating costs and increase the capacity for growth considerably.
The unique selling point of an LLP is that each partner has limited personal liability. A limited partner cannot be held personally liable for the actions of other general and limited partners or people who are employed by or associated with the business. Their personal assets are protected, as their liability is strictly limited to the capital they invested in the business.
Are LLP Partners Free from All Kinds of Liabilities?
No. The partners in a limited liability partnership are only protected against business debts and the liability issues stemming from the negligence, misdeeds, or malpractice of other partners, employees, and associates. They can still be held liable for their own negligence, misdeeds, and malpractice.
How Are Limited Liability Partnerships Taxed?
When you form a limited liability partnership, each partner is required to pay taxes on their share of the profits generated by the business.
Are Limited Liability Partnerships the Same as Limited Partnerships?
No. Limited partnerships have two different types of partners – general partners (active partners) and limited partners (silent partners). In a limited partnership (LP), the general partner is the one who has management control and plays an active role in the business. The limited partner’s involvement is limited to the financial contributions they make to the business and business profits.
In an LLP, on the other hand, all partners play an active role in the operation of the business. The extent of their involvement depends on their role in the business – as outlined in the limited liability partnership agreement.
Are Limited Liability Partnerships the Same as Limited Liability Companies?
No. LLCs can be managed by its members or by third-parties (managers) hired by the members. LLPs, on the other hand, are managed by the partners without any assistance or interference from third parties.
Similarly, an LLC can be taxed as a sole proprietorship, as a C-Corp, or as an S-Corp – depending on the number of members and the tax structure chosen by its members. An LLP, on the contrary, can only be taxed at an individual level (each partner pays their own taxes), since it is a pass-through entity.
Is There a Cap on How Many Partners an LLP Can Have?
No. The founding partners of a limited liability partnership have the authority to decide how the business should be operated and managed. They can choose to divide the duties among themselves or they can allow one partner to manage the day-to-day operations, while the rest focus on other areas. Similarly, as they scale their operations, the founding partners can choose to add as many junior partners as well as full partners as they want to.
Looking to Form a Limited Liability Partnership in Texas? We Can Help You.
If you are planning to form an LLP in Texas and wondering how to get started, the business attorneys at Kelly Legal Group can help you. We can assess your business needs and goals, determine whether an LLP is the right business entity for you, draft the partnership agreement, and take care of all the paperwork involved.
We have deep knowledge and experience in the formation of business entities, including general partnership, family limited partnership, and several other entities in addition to LLPs. To find out how we can help you with legal or financial advice, call us today at 512-505-0053 or contact us online and schedule a free consultation with an experienced Austin, TX business attorney.