Partnerships are a common business structure in America. According to statistics, there were about 3.8 million partnerships in America in 2019, representing 25.3 million partners. Limited liability partnerships represented 10.8% of these.
Albeit not very well-known, limited liability partnerships are arguably some of the best partnerships in terms of profitability and asset protection. Here’s a brief overview of what you should know about LLPs and their role in asset protection.
A limited liability partnership is a form of partnership that extends a limited personal liability to all partners in the business, including general partners. To understand an LLP well, you must understand how a general partnership works.
A general partnership operates as a for-profit business entity created through a mutual understanding between two or more parties. Typically, it constitutes two or more people working together to make money.
General partnerships are rather informal, requiring only a shared interest, an optional contract, and a handshake to do business. This structure gives it its biggest downside, legal liability. Typically, if anyone sues the business, all partners are personally liable.
A limited liability partnership is a formal legal entity that limits the liability of each partner, protecting their personal assets from a suit targeting the business.
Therefore, you may lose your assets within the business, but your personal assets are protected.
An LLP and LLC protect their owners’ personal assets. However, they possess a few differences.
For instance, an LLP requires a written partnership agreement with annual reporting requirements depending on the jurisdiction.
LLPs and LLCs also have different liability protections and management requirements. LLCs have more flexible management, allowing anyone to lead the business. On the other hand, LLPs require management duties to be equally divided.
An LLP may be superior to an LLC or any other corporate entity, depending on an individual’s profession. Tax-wise, it is regarded as a flow-through entity, meaning partners receive untaxed profits and must pay the taxes themselves.
Here are some excellent benefits of trading through an LLP.
A limited liability partnership is just one of many business entities you can use to protect your assets.
Here are a couple others:
A family limited partnership (FLP) is a limited partnership that only contains members from the same family.
One of the biggest and most favored advantages of our FLPs is the tax benefits. If a family member chooses to purchase both a general partnership interest and a limited partnership interest and they transfer these limited partnership interests to other members of their family, the transferring party gets to reduce the taxable value of their estate. This ensures complete control over the management and investment decisions of both your company, and of the transferees, who are not granted authority to make decisions regarding these matters. This could enable others to take advantage of valuation discounts when the transfer is complete.
A newer kind of entity called an LLP protects the general partner from personal liability for the debts incurred by the partnership. This entity has a protective barrier, comprised of the setting up of multiple layers of entities in a simpler, more refined approach.
When your business enterprise becomes a limited liability limited partnership, you can always rest assured knowing that the only assets you are risking are the assets that you invest in your business.
Find out how The Second Estate can make an LLP work to protect your assets.