Home Blog Limited Liability Partnerships: How They Work

Jump to Section

Quick Facts — Partnership Agreement Lawyers

What Are Limited Liability Partnerships?

Limited liability partnerships, also known as LLPs, are a type of partnership of two or more owners. LLPs are like limited liability corporations (LLCs) but with distinct advantages for general partners. General partners can form an LLP by signing a partnership agreement and filing an LLC operating agreement and Articles of Incorporation with the Secretary of State’s Office.

Here is an article about limited liability partnerships .

How Limited Liability Partnerships Work

LLPs work by allowing general partners to limit the amount of liability they share. These limitations are assigned according to their level of investment in the business.

Limited liability partnerships allow all partners to distribute risk, capitalize on individual abilities, and establish labor divisions. In addition to various benefits, an LLP also guarantees that creditors cannot go after another general partner’s assets if another fails in his or her ability to pay.

Businesses that most often use LLPs include:

  • Insurance companies
  • Accounting firms
  • Law firms
  • Financial management companies
  • And more

Due to the informalities of a general partnership, there are always downsides. However, LLPs shore up these relationships by offering distinct advantages and disadvantages versus more traditional structures.

Here is an article about how a limited liability partnership works .

Advantages and Disadvantages of Limited Liability Partnerships

There are several advantages and disadvantages of limited liability partnerships. Depending upon the jurisdiction, general partners share in limited liabilities. This arrangement works well when general partners do not want to be liable for another’s actions or behaviors.

Meet some lawyers on our platform

Benjamin W.

191 projects on CC
CC verified
View Profile

Lori B.

331 projects on CC
CC verified
View Profile

Jorge R.

28 projects on CC
CC verified
View Profile

Philips V.

11 projects on CC
CC verified
View Profile

Advantages of Limited Liability Partnerships

  • Advantage #1: Liability is dependent upon the level of investment.
  • Advantage #2: General partners get to enjoy specific tax benefits.
  • Advantage #3: Limited partnerships are considered separate legal entities.

Disadvantages of Limited Liability Partnerships

  • Disadvantage #1: There is more documentation and paperwork required.
  • Disadvantage #2: At least one person must act as a general partner.
  • Disadvantage #3: You must pay expensive self-employment taxes.
  • Disadvantage #4: Attendance of meetings is required for compliance.

Not every business is eligible to operate as an LLP. This limitation is typically due to the rules and regulations set at the state level. Before forming an LLP, it is vital to compare LLPs to other business structures first.

ContractsCounsel Limited Liability Partnership Image

Image via Pexels by Savvas Stavrinos

Comparing LLPs to Other Business Structures

It is a wise move to compare an LLP to other business structures. An LLP is a unique type of business structure, which means that you should consider all of your options before forming one. Other business structures include LLCs, general partnerships, limited partnerships, and corporations.

LLPs vs. LLCs

An LLP is similar to an LLC with a few key differences. General partnerships offer unique tax advantages. However, an LLP also offers the same insulation from financial and legal liability as an LLC for joint ventures and sole proprietorships .

LLCs utilize members instead of partners. Instead of partners owning property and assets, the LLC owns them. LLCs have their own tax ID numbers, whereas partners can have their own that they provide under the LLP.

LLPs vs. General Partnerships

General partnerships occur between two or more parties. They share in the profits and debts of the company. The general partners of the company determine of daily options should be run.

LLPs are for individuals who want the partnership structure with the protection of an LLC. When using this entity, the liabilities of each partner are segregated and limited to specific actions. Additionally, an LLP ensures that any given partner is not liable for the acts of another.

LLPs vs. Limited Partnerships

Limited partnerships may comprise of general and limited partners. Limited partners are focused on the return on investment (ROI) rather than the day-to-day operations. A limited partnership agreement specifies how much involvement they can have.

Under an LLP, the general partners handle routine operations. They take an allocated share of the investment like limited partners as well.

LLPs vs. Corporations

A corporation is another type of business entity. The main difference between LLPs vs. corporations is that corporations allow shareholders. Corporations also follow different tax codes and local, state, and federal laws and offer a corporation or incorporation designation.

LLPs are not publicly traded organizations. Instead, general partners use traditional forms of investment, including bank loans, sweat equity, and more.

Here is an article about comparing LLPs to other business structures .

LLPs and Taxation

An LLP avoids double taxation associated with corporate entities. Partners file their own taxes on their share of the profits and losses of state and federal income tax returns. General partners may also pay self-employment taxes as well.

These are a few other issues related to LLPs and taxation:

LLPs Are Not LLCs

While an LLP may insulate general partners financially like an LLC, it is essential to keep in mind that they are not. The main difference from an LLC is that LLPs offer how partners can be taxed at the federal level. Regardless, LLPs are still taxed as partnerships.

LLPs Are Separate Business Entities But Not Taxed Like One

For LLP taxation purposes, they are generally not taxed as separate business entities at the federal level. However, state laws may not allow you to glean benefits from these passthrough entities and impose a franchise tax on the LLP. Corporate lawyers in your state can help you understand LLPs and taxation as it applies to your situation.

LLPs May Be Expensive

Each year, the LLP must register in the state of formation with the local Secretary of State’s Office. Registration fees can cost between $100 - $200 per person. They may also require you to carry a specific amount of professional liability insurance for negligence or wrongdoing.

Tax lawyers can help you understand LLPs and taxation as they apply to your situation. However, here is an article about the basics of an LLP .

How to Form a Limited Liability Partnership

Forming a limited liability partnership is a fairly straightforward process for simple general partnerships. However, these relationships can become increasingly complex in terms of structure, assets, and profit distribution. Choose your partners wisely and thoroughly discuss the terms of your relationship, including liability and expectations.

These are the steps you generally take to form a limited liability partnership:

  • Step #1 : Register the LLP with your Secretary of State’s Office and pay all application fees.
  • Step #2 : Negotiate, draft, and sign a limited liability partnership agreement with the general partners.
  • Step #3 : Work with corporate lawyers to ensure that you comply with local business laws and have appropriate licenses.
  • Step #4 : Obtain an issued Employer Identification Number (EIN) through the Internal Revenue Service (IRS).
  • Step #5 : Pay LLP taxes and file all required documentation with the Secretary of State’s Office annually.

Depending upon your partnership’s dynamics, you may want to have individual partners obtain legal representation individually. Doing so will assist in the efficiency of negotiation as well as consistency and fairness. It can also reduce the claim of signing the agreement under duress in the future if that is an issue you may face.

Here is an article about how to form a limited liability partnership.

Need Corporate Lawyers?

ContractsCounsel can put you in touch with corporate lawyers in your state. Post your project for free .


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


Need help with a Partnership Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 23,443 reviews

Meet some of our Lawyers

Justin A. on ContractsCounsel
View Justin
5.0 (10)
Member Since:
July 7, 2021

Justin A.

Partner
Free Consultation
Seattle, WA
9 Yrs Experience
Licensed in NY, WA
The University of Chicago Law School

I am a lawyer who helps small businesses, nonprofits, and startups with a wide variety of agreements, corporate formation, and corporate governance. ​ I earned my BA from Tulane University and my JD from the University of Chicago Law School. Before starting my own practice, I worked at an international law firm in New York City. ​ Outside of work, I am on the board of the nonprofit Seattle REconomy (which runs the NE Seattle and Shoreline tool libraries) and I enjoy gardening, baking bread, and outdoor activities with my spouse and two dogs.

Recent  ContractsCounsel Client  Review:
5.0

"Justin provided excellent, expedient service and made sure my needs were met satisfactorily."

Ryenne S. on ContractsCounsel
View Ryenne
4.9 (612)
Member Since:
October 11, 2022

Ryenne S.

Principal Attorney
Free Consultation
Chicago, Illinois
16 Yrs Experience
Licensed in IL
DePaul University College of Law

My name is Ryenne Shaw and I help business owners build businesses that operate as assets instead of liabilities, increase in value over time and build wealth. My areas of expertise include corporate formation and business structure, contract law, employment/labor law, business risk and compliance and intellectual property. I also serve as outside general counsel to several businesses across various industries nationally. I spent most of my early legal career assisting C.E.O.s, General Counsel, and in-house legal counsel of both large and smaller corporations in minimizing liability, protecting business assets and maximizing profits. While working with many of these entities, I realized that smaller entities are often underserved. I saw that smaller business owners weren’t receiving the same level of legal support larger corporations relied upon to grow and sustain. I knew this was a major contributor to the ceiling that most small businesses hit before they’ve even scratched the surface of their potential. And I knew at that moment that all of this lack of knowledge and support was creating a huge wealth gap. After over ten years of legal experience, I started my law firm to provide the legal support small to mid-sized business owners and entrepreneurs need to grow and protect their brands, businesses, and assets. I have a passion for helping small to mid-sized businesses and startups grow into wealth-building assets by leveraging the same legal strategies large corporations have used for years to create real wealth. I enjoy connecting with my clients, learning about their visions and identifying ways to protect and maximize the reach, value and impact of their businesses. I am a strong legal writer with extensive litigation experience, including both federal and state (and administratively), which brings another element to every contract I prepare and the overall counsel and value I provide. Some of my recent projects include: - Negotiating & Drafting Commercial Lease Agreements - Drafting Trademark Licensing Agreements - Drafting Ambassador and Influencer Agreements - Drafting Collaboration Agreements - Drafting Service Agreements for service-providers, coaches and consultants - Drafting Master Service Agreements and SOWs - Drafting Terms of Service and Privacy Policies - Preparing policies and procedures for businesses in highly regulated industries - Drafting Employee Handbooks, Standard Operations and Procedures (SOPs) manuals, employment agreements - Creating Employer-employee infrastructure to ensure business compliance with employment and labor laws - Drafting Independent Contractor Agreements and Non-Disclosure/Non-Competition/Non-Solicitation Agreements - Conducting Federal Trademark Searches and filing trademark applications - Preparing Trademark Opinion Letters after conducting appropriate legal research - Drafting Letters of Opinion for Small Business Loans - Drafting and Responding to Cease and Desist Letters I service clients throughout the United States across a broad range of industries.

Recent  ContractsCounsel Client  Review:
5.0

"Very helpful and informative, easy to communicate with as well. Very fast turnaround time!"

Forest H. on ContractsCounsel
View Forest
5.0 (67)
Member Since:
July 14, 2020

Forest H.

Attorney
Free Consultation
Nashville, TN
28 Yrs Experience
Licensed in FL, TN, TX
Washington and Lee University

Forest is a general practice lawyer. He provides legal advice regarding small business law, contracts, estates and trusts, administrative law, corporate governance and compliance. Forest practiced complex commercial litigation in Florida for eight years, representing clients such as Host Marriott, Kellogg School of Business, and Toyota. Since moving to Nashville in 2005, he has provided legal advice to clients forming new businesses, planning for the future, and seeking funding through the use of equity and/or debt in their businesses. This advice has included the selection of business type, assistance in drafting and editing their business plans and offering material, reviewing proposed term sheets, and conducting due diligence. Forest is a member of the Florida, Tennessee, and Texas Bars; in addition. Forest has held a Series 7, General Securities Representative Exam, Series 24, General Securities Principal, and Series 63, Uniform Securities Agent State Law.

Recent  ContractsCounsel Client  Review:
5.0

"professional and so kindly, 'ive requested some modification and he managed everything in an excellent way"

Phocus L. on ContractsCounsel
View Phocus
5.0 (1)
Member Since:
September 16, 2021

Phocus L.

Attorney
Free Consultation
Phoenix, AZ, USA
15 Yrs Experience
Licensed in AZ, CA
Georgetown University Law Center

G'day, my name is Michele! I work with startups, entrepreneurs and small/medium-sized businesses across the country in a wide array of industries. I help them with all of their ongoing, daily legal needs. This includes entity formation, M&A, contract drafting and review, employment, asset sale & acquisition, and business sales or shareholder exits. I'm half-Australian, half-Italian, and I've lived the last 20+ years of my life in America. I've lived all over the USA, completing high school in the deep south, graduating cum laude from Washington University in St. Louis, and then cum laude from Georgetown University Law Center. After law school I worked for the Los Angeles office of Latham & Watkins, LLP. After four intense and rewarding years there, I left to become General Counsel and VP of an incredible, industry-changing start-up called Urban Mining Company (UMC) that manufactures rare earth permanent magnets. I now work for Phocus Law where I help run our practice focused on entrepreneurs, startups, and SMEs. I love what I do, and I'd love to be of help! My focus is on providing stress-free, enjoyable, and high-quality legal service to all of my clients. Being a good lawyer isn't enough: the client experience should also be great. But work isn't everything, and I love my free time. I've been an avid traveler since my parents put me on a plane to Italy at 9-months old. I'm also a music nut, and am still looking for that perfect client that will engage me to explain why Dark Side Of The Moon is the greatest album of all time. Having grown up in a remote, and gorgeous corner of Australia, I feel a strong connection to nature, and love being in the elements.

Mark P. on ContractsCounsel
View Mark
4.4 (11)
Member Since:
July 21, 2023

Mark P.

Owner
Free Consultation
Bastrtop, TX
11 Yrs Experience
Licensed in KS, MO, NE, TX
University of Missouri - Kansas City

I represent a diverse mix in a vast array of specialties, including litigation, contracts, compliance, business and financial strategies, and emerging industries. Credit for this foundation of strength goes to those who taught me. Skilled professors and professionals fostered my powerful educational and professional background. Prior to law school, I earned dual Bachelor’s degrees in Business Administration & Accounting from Peru State College. I received a Master of Business Administration degree from Chadron State College. My ambitions did not stop there. While working full time as a Senior Accountant for the University of Missouri, Columbia, I achieved the lifelong goal of becoming a licensed Certified Public Accountant (CPA). Mizzo provided excellent opportunities and amazing experiences. Managing over $50M in government and private research funding was a gift. As a high ranking professional in the Department of Research, I was given priceless insight into the greatest scientific, journalistic, medical, and legal minds in the world. My passion for successful growth did not, and has not stopped. I graduated summa cum laude (top 3%) with a Doctorate in Law, emphasizing in urban, land use and environmental/toxic tort law from the University of Missouri, Kansas City. This success lead to invaluable experiences of serving as Hon. Brian C. Wimes' judicial clerk for the U.S. District Court for the W. D. of Missouri, as a staff editor/writer for UMKC Law Review, and as a litigation and transactional attorney with Lathrop GPM (fka Lathrop & Gage). My professional and personal network is expansive, with established relationships throughout the U.S. and overseas. Although I engage in legal practice all over the country, I maintain law licenses in Missouri, Kansas, and Nebraska. Federally, I hold licenses in the W.D. and E.D. of Missouri and the District of Nebraska. To offer extra value, efficiency, and options, I maintain a CPA license and am obtaining a real-estate brokerage license.

Recent  ContractsCounsel Client  Review:
5.0

"I contacted Parachini Law after I had sent multiple unanswered information requests a third party. Mark not only send out a record request to the address specified, but also sent out additional requests at other possible business addresses to ensure the request was received. As a result, I finally received the information I was looking for. The firm was very professional to work with."

Karen H. on ContractsCounsel
View Karen
Member Since:
July 23, 2023

Karen H.

Former Division General Counsel
Free Consultation
Chicago
45 Yrs Experience
Licensed in IL
Loyola University Chicago School of Law

During my tenure as VP & Division General Counsel of PepsiCo Inc. in Chicago, I built upon my diverse career overseeing legal matters for both the domestic and international businesses of PepsiCo and The Quaker Oats Co. My extensive practice areas included M&A, contracts, competition, NDAs, regulatory compliance, consumer product & protection, environmental, patents, and advertising regulations. Throughout my professional journey, I navigated legal complexities associated with an eclectic range of products, spanning juices, sports drinks, cereals, snacks, needlepoint kits, canned goods, eyeglasses, men's suits, car seats and toys. For further information, see my LinkedIn: http://linkedin.com/in/karen-hunter-a700179

Find the best lawyer for your project

Browse Lawyers Now

See Real Partnership Agreement Projects

Pennsylvania General Partnership Agreement Review
  • Pennsylvania
  • 3 lawyer bids
  • $170 - $600
View Details
Texas Retail Partnership Agreement Review
  • Texas
  • 3 lawyer bids
  • $350 - $1,650
View Details
Florida Shareholders agreement Drafting
  • Florida
  • 6 lawyer bids
  • $750 - $1,250
View Details
Michigan Partnership buy-in Review
  • Michigan
  • 7 lawyer bids
  • $595 - $2,450
View Details
Massachusetts Partnership Agreement Drafting Drafting
  • Massachusetts
  • 9 lawyer bids
  • $500 - $1,500
View Details
Tennessee Partnership Agreement Drafting
  • Tennessee
  • 7 lawyer bids
  • $175 - $999
View Details

See all Partnership Agreement projects

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a Partnership Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 23,443 reviews
CONTRACT LAWYERS BY TOP CITIES
See All Corporate Lawyers
LIMITED LIABILITY PARTNERSHIPS LAWYERS BY CITY
See All Limited Liability Partnerships Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help with a Partnership Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 23,443 reviews

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city