The Limited Liability Limited Partnership (LLLP)

The limited liability limited partnership is a partnership that provides liability protection to its partners. In a general partnership, the partners remain liable. If someone sues the partnership, they can go after the partners' personal assets, including their homes. Some states recognize this entity, but some do not. If it's not available in one state, you may be able to form a foreign limited liability limited partnership in another state.

Personal Liability

The main reason for forming a limited liability limited partnership is to protect the partners from personal liability. Let's say a group of lawyers launch a personal injury law firm as a general partnership. If one lawyer acts in a negligent manner, is sued for malpractice and loses the case, the plaintiff may go after the assets of all the general partners involved. Malpractice insurance may not be enough to cover the type or amount of the lawsuit. The general partners can sue the negligent partner to recoup damages, but that person may have few assets. That's why it's a popular entity among professionals, such as accountants. While the partners' personal assets are protected, plaintiffs can sue for the partnership's assets, and the partnership must pay for outstanding debts.

General vs. Limited Partners

Two types of partners can coexist in one limited liability limited partnership: general partners and limited partners. The general partners often manage the daily affairs of the business. The limited partners invest in the partnership and have little to do with the daily activities. When major decisions must be made, they will have more input at that time. It depends on what's written in the partnership agreement. It's a popular choice among investors who want to capitalize a business but leave it up to the founders to run the business, while shielding them from personal liability.

Taxes

A limited liability limited partnership acts like most general partnerships for tax purposes. The partners are taxed based on their distributive shares. The entity itself is not taxed. Some states will still charge a flat tax, despite the no income tax requirement. It's important to evaluate what those fees are. It's one of the reasons why some business owners will form one in a different state with more favorable tax provisions.

Creation and Maintenance

Many states allow for a simple registration process to form a limited liability limited partnership. An existing limited or general partnership can elect this status, or some states allow it to be formed from scratch. It's important to consult with an attorney on the partnership agreement to ensure that the entity is properly established, but registering the entity itself is straightforward. You can contact the Secretary of State's office or corporation division for the required forms and fee rates. You'll have to file annual reports with the Secretary of State to remain in good standing, and there are fees associated with those reports as well.

If you plan to solicit investors, or if you are one, then explore forming a limited liability limited partnership. A business lawyer can help you create it and maintain it each year.

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