Consultant’s Corner: LP vs. LLP

Consultant’s Corner: LP vs. LLP

Q. Is an LP the same as an LLP? If not, what are the advantages and disadvantages of each entity?

LP stands for Limited Partnership, while LLP stands for Limited Liability Partnership. The two structures are very different from purpose, governance, and legal liability perspectives:

Limited Partnership (LP)

LPs are commonly used for long-term real estate investments, oil and gas lease investments, and other business activities with inactive or silent partners.

In a limited partnership, there will be at least one general partner, and then one or more “limited partners.” In most cases, the general partner will be providing financial resources, while also being involved in daily management. An experienced businessperson is ideal. The limited partner(s) are individuals or businesses that only provide capital or financial resources, and are not involved in daily operations. State laws will dictate many specific aspects of limited partnerships.

LLP

A limited liability partnership or LLP is a common business organization for lawyers, doctors, accountants, and other professionals.

An LLP is a specific form of a general partnership that limits the liability of the partners. In a general partnership, each individual partner can be held liable for the partnership’s debts and obligations, so that one partner’s actions can create liability in the other partners. Whereas in a limited liability partnership, the individual partners are not liable for the partnership’s debts, obligations, or liabilities. Each partner is held liable for his or her own actions, not those of the other partners.

LP/LLP Advantages

The potential advantages and disadvantages (legal protection, governance, income tax, etc.) of a particular business structure vary based on the type of business, number of investors, planned management participation by the investors, investor exit strategy, and other factors. LPs are useful for specific endeavors where there is a clear distinction between partners who are providing resources and partners who will do the work. LLPs are more appropriate when all of the partners will be taking an active role in the business.

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About the author

Bill Wortman

Bill Wortman is the Chief Business Consultant for GoSmallBiz.com, with over 40 years of business experience. In addition to 12 years consulting small business owners, Bill’s professional career includes a big-eight CPA accounting firm, national consumer finance, big-three automotive manufacturing, Arby’s fast food, marketing, and other industries. He’s held multiple executive-level positions and fulfilled the role of CFO at large, publicly held (NYSE, NASDAQ, and AMEX) corporations. In addition, he’s been an owner of private ventures involving residential real estate development and a General Motors new car dealership.

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