The limited liability partnership (LLP) is a business structure that is typically reserved for professional service companies that require certain state licenses to operate. A few examples of companies that can typically incorporate as an LLP are medical practices, law firms, dentist’s offices, and architectural firms. LLPs offer a form of limited liability protection, which prevents the personal assets of each individual owner from being seized due to the actions of the company’s other partners.
Pros and cons
LLPs enjoy personal asset protection, as well as freedom from many of the regulatory requirements placed on more formal structures. In exchange for this protection, LLPs are typically required to have insurance policies that cover any personal liability issues that may arise due to the often-sensitive nature of their services. LLPs are still required to follow standard procedures in regards to staying compliant.
Tax implications
An LLP is taxed on its owners’ personal income tax returns. Owners of an LLP are considered self-employed, and are responsible for understanding their self-employment tax obligations.
Quick process overview
The first step in forming an LLP is to file all necessary registration documents with the state in which you are looking to establish your business. Then you will be required to pay all necessary fees.
Continuing requirements
Once the initial formation process has been completed, it is recommended (but not mandatory) that you take the time to develop a formal set of documents that will explicitly outline the ownership and management structure of the business, as well as establish your initial bank accounts.
Other notes
The LLP is not a recognized business structure in several states. Also, it is typically only an option for professional service companies such as: medical offices, accounting or architectural firms, and legal practices.
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