What Is A Registered Limited Liability Limited Partnership

The partnerships that limit personal liability for business debts.

Limited partnerships (LPs) and limited liability partnerships (LLPs) are both businesses with more than than ane possessor, but unlike general partnerships, limited partnerships and limited liability partnerships offering some of their owners limited personal liability for business debts.

In limited partnerships (LPs), at least ane of the owners is considered a "general" partner who makes business organization decisions and is personally liable for business debts. Just LPs also have at to the lowest degree one "limited" partner who invests coin in the business but has minimal control over daily business organisation decisions and operations. The reward for these limited partners is that they are not personally liable for business debts.

The limited liability partnership (LLP) is a similar concern structure only information technology has no full general partners. All of the owners of an LLP have limited personal liability for business debts.

In order to better understand LPs and LLPs, information technology's helpful to compare them to general partnerships.

What is a Full general Partnership?

In the business world, the give-and-take "partnership" usually refers to general partnerships. A general partnership is a business that has more than than 1 owner and that has non filed papers with the state to create a specific entity such equally a corporation or limited liability company (LLC). (To learn more than about general partnerships, see Nolo'south Partnerships area.)

In a general partnership:

all partners (chosen full general partners) are personally liable for all business debts, including court judgments
each individual partner tin can be sued for the total amount of any business debt (though that partner can in plow sue the other partners for their share of the debt), and
each partner has "agency authority" for the partnership -- that is, each partner can bind the whole business to a contract or business organization deal.

How Are Limited Partnerships Different?

A limited partnership has at least ane full general partner and at least one express partner. The general partner has the same role every bit in a general partnership: controlling the company'south day-to-day operations and beingness personally liable for business debts.

The role of limited partners, nevertheless, differs in a few ways:

Express partners do not play an agile office in the concern. The limited partners (most LPs have more than than one limited partner) contribute financially to the business organisation (for example, a limited partner might invest $100,000 in a real estate partnership) but have minimal command over business organisation decisions or operations, and usually cannot bind the partnership to business deals.
Limited partners are not personally liable. In return for giving up management power, limited partners go the benefit of protection from personal liability. This means that a express partner tin can't exist forced to pay off concern debts or claims with personal avails. A limited partner, however, can lose his or her financial investment in the business.
Limited partners face slightly different tax rules. For income revenue enhancement purposes, limited partnerships generally are treated like general partnerships, with all partners individually reporting and paying taxes on their share of the profits each year. Limited partners, every bit a rule, exercise not accept to pay self-employment taxes; because they are non active in the business, their share of partnership income is not considered "earned income" for purposes of the cocky-employment tax.

Express partners demand to understand that they can become personally liable if they do not stick to their passive role. If a limited partner starts taking an agile role in the business, that partner'south liability can become unlimited. If a creditor can prove that a limited partner took acts that led the creditor to believe that he or she was a full general partner, that partner can be held fully and personally liable for the creditor'south claims.

Some states accept carved out exceptions to this "active role in the business" rule. These exceptions commonly permit a limited partner to vote on issues that impact the basic structure of the partnership, including the removal of general partners, terminating the partnership, amending the partnership agreement, or selling all or about of the assets of the partnership, without jeopardizing limited partner condition.

Express Liability Partnerships

Some other kind of partnership, called a limited liability partnership (LLP) or sometimes called a registered limited liability partnership (RLLP), provides all of its owners with limited personal liability. LLPs are particularly well-suited to professional person groups, such as lawyers and accountants. In fact, in some states LLPs are simply bachelor to professionals.

Professionals oft prefer LLPs to general partnerships, corporations, or LLCs because they don't desire to exist personally liable for some other partner's problems -- particularly those involving malpractice claims. An LLP protects each partner from debts against the partnership arising from professional malpractice lawsuits against some other partner. (A partner who loses a malpractice suit for his own mistakes, even so, doesn't escape liability.) Forming a corporation to protect personal assets may be likewise much problem, and some states (including California) won't allow licensed professionals to course an LLC.

How to Create an LP or LLP

Creating a express partnership or limited liability partnership is done at the state level. Each state has its ain rules, but in full general you must pay a fee and file papers with the state, usually a "certificate of express partnership" or "certificate of limited liability partnership." This document is similar to the articles (or certificate) filed by a corporation or an LLC and includes information nigh the general and limited partners. Filing fees for LPs and LLPs are similar to those for corporations and LLCs.

For more information on limited partnerships, including how to draft a express partnership understanding, get Course a Partnership: The Consummate Legal Guide, by Ralph Warner and Denis Clifford (Nolo).