Limited Liability Partnership (LLP) and limited partnership (LP)

Find out if a LLP or LP is right for your business.

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LLP

A limited liability partnership (LLP) is formed by two or more individuals going into business together.

Advantages:

  • The personal liability in an LLP is limited to your capital contribution in the LLP. This means that your personal assets are not at risk because of the company's losses or debts.
  • An LLP is not required to maintain corporate formalities, such as annual meetings or corporate filings. All partners can conduct business for the LLP and participate in management duties.
  • LLPs are pass-through entities. This means that the LLP doesn’t pay taxes for the business entity, and all profits are “passed” to the partners and taxed as personal income.

Disadvantages:

  • Any partner in the LLP that is actively involved in the management of the business can lose their limited liability status. They will be responsible for their liability as well as the liabilities of any of the limited partners.

LP

A limited partnership (LP) is formed by two or more individuals and at least one of them must be a general partner. The general partner may be a corporation instead of an individual.

Advantages:

  • No mandatory corporate formalities, such as annual meetings or corporate filings.
  • Personal liability of limited partners is limited to capital contributions.
  • Limited partners don’t have to pay self-employment tax as general partners do. This is because they receive dividends for their share of investment in the business and are not considered self employed as long as they stay passive in the business operation.

Disadvantages:

  • General partners don’t have limited liability. They will be responsible for their liability as well as the liabilities of any of the limited partners in the LP.
  • Limited Partners are silent partners and cannot participate in the management of the LP. Only the general partners have the right to manage the LP.
  • Limited Partners can lose their status and be held personally responsible for business liabilities if they’re found to be actively involved in the management of the business.

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