Limited Liability Partnership (LLP)

Limited liability partnerships (LLPs) offer a flexible legal and tax structure that lets partners work together, enjoy economies of scale, and limit their liability for each other’s actions.

Before diving into any legal structure, it's important to check the laws in your country and state. In short, consult a lawyer first. They likely have personal experience with LLPs.

What is a Limited Liability Partnership (LLP)?

To get what an LLP is, it helps to first understand a general partnership. A general partnership is a business formed by two or more people agreeing to work together for profit. It can be very informal, sometimes just requiring a shared interest and a handshake.

However, this informality comes with a big downside: legal liability. In a general partnership, all partners are responsible for any issues that come up. For instance, if Jack and Leo run a cupcake shop and a bad batch makes customers sick, both can be sued. This is why many people quickly turn general partnerships into formal legal corporations to protect personal assets from lawsuits.

The specifics of an LLP vary by location, but generally, partners' personal assets are protected from legal actions against the partnership. A lawsuit will target the partnership first, but a partner can still be held personally liable if they directly cause harm.

We are SOC 2 ready.

Features of a Limited Liability Partnership

Body Corporate: An LLP is created / incorporated under the Limited Liability Partnership Act 2008, making it a separate legal entity from its partners.

Perpetual Succession: Unlike a general partnership, an LLP continues despite changes in partnership, such as retirement or death. It can enter contracts / own property in its name.

Separate Legal Entity: An LLP is responsible for its own assets. Partners’ liability is limited to their contributions, and the LLP’s creditors are separate from the partners' personal creditors.

Benefits of a Limited Liability Partnership (LLP)

LLPs are popular among professionals who rely on their reputation. Most LLPs are formed and managed by experienced experts with established clients. By pooling resources, partners can reduce business costs and boost growth potential. Office space / staff / other resources can be shared, allowing partners to benefit more from their collective activities.

Junior partners often work for an LLP's senior partners with hopes of becoming full partners someday. These junior partners typically receive a salary without ownership or liability in the partnership, helping the LLP scale operations. They handle daily tasks, freeing senior partners to focus on bringing in new clients.

Here are five well-known examples of Limited Liability Partnerships (LLPs):

  1. PwC (PricewaterhouseCoopers)some text
    • PwC is one of the significant professional services networks in the world, offering audit, assurance, consulting, and tax services. It operates as an LLP in many countries.
  2. Deloittesome text
    • Deloitte is an MNC professional services network providing audit, consulting, financial advisory, risk management, and more. It operates as an LLP in several regions.
  3. KPMGsome text
    • KPMG is a global network of professional firms providing audit / tax / advisory services. It is structured as an LLP in numerous countries.
  4. Ernst & Young (EY)some text
    • EY is one of the "Big Four" accounting firms, offering assurance, advisory, tax, and transaction advisory services. EY operates as an LLP in various jurisdictions.
  5. Dentonssome text
    • Dentons is one of the world's largest law firms, providing a range of legal services. It operates as an LLP in multiple countries, emphasizing its commitment to quality and client service.

These firms are examples of how LLP structures are used in professional services industries to balance collaboration, growth, and liability protection.

Read more: How much will a fractional CFO cost in 2024?

Summary

LLPs allow for a partnership structure where every partner’s liability is limited to their investment in the venture. This structure helps distribute risk, leverage individual skills, and create a division of labor. If the partnership fails, creditors cannot seize a partner's personal assets or income. Common examples of LLPs include law firms, accountancy firms, medical practices, and wealth managers.

Say hello on LinkedIn.