Partnerships are a relatively easy way to establish a business without a lot of start-up costs. It is also a way to create greater borrowing capacity and to provide incentives to high-caliber employees by offering them a partnership. Aside from these advantages and other great attributes, partnerships create liability issues, and that's why many start-ups consider incorporating as a corporation or limited liability company. A limited liability partnership (LLP) merges the benefits of all these business structures. An LLP, however, is not suitable for all business types, and that is why it is critical to speak to a business law attorney in Wisconsin to make sure the business type you choose is the best choice for your business goals.
At Heritage Law Office, our corporate lawyer helps clients who want to form a business and are trying to determine the best business structure. We, however, do not stop there––we provide an array of legal services that will help your business, whether a start-up or fully established, move in the right direction. Contact us today at 414-253-8500 or send us a message to schedule a free consultation and learn more about how we can help you form and grow your business.
What is a Limited Liability Partnership?
A limited liability partnership (LLP) is a business formed by two or more partners that combines the features of both a general partnership, in terms of management, and a corporation, in terms of liability.
Each partner can participate in the management of an LLP while their personal liability is shielded from debts or liabilities arising from the malpractice of another partner.
A partner's personal liability is typically limited to their investment in the partnership. While protecting them from malpractice lawsuits against another partner, an LLP does not protect a partner's personal liability against lawsuits arising from their own negligence.
A more formal structure than a general partnership, an LLP usually requires a written partnership agreement, setting out the operating structure of the partnership as well as how profits are shared.
Common in the professional services industry, the eligibility criteria for LLPs vary between states. As such, it is important to seek professional advice before creating one.
Advantages of a Limited Liability Partnership in Wisconsin
There are basic advantages of an LLP from which many businesses can benefit. The key is making sure the advantages align with your actual business plan and goals.
- Limited personal liability. An LLP is a separate legal entity. In the event of bankruptcy or a lawsuit against the partnership, partners' personal assets are typically protected and limited to their investment in the partnership.
- Flexible management. Under the partnership agreement, partners can choose how management rights and responsibilities are allocated. This can range from passive investment to active involvement in the day-to-day management of the LLP. The partnership agreement also sets out how partners are added or removed from the partnership, including things like retirement. This provides partners with a high degree of flexibility when structuring an LLP.
- Combined resources. LLPs allow partners to pool their resources (financial resources as well as their expertise, experience, and reputation) in the business.
- Reduced costs. LLPs also allow professionals to share the costs of running an independent business (e.g., office hire, equipment, and employees), reducing individual partners' overheads.
- Taxation. An LLP is typically a flow-through entity for tax purposes, meaning its profits (and losses) are passed to the partners who are then personally taxed on them. An LLP does not pay federal corporate taxes, avoiding double taxation.
These advantages need to be weighed against the potential disadvantages of an LLP.
Disadvantages of a Limited Liability Partnership in Wisconsin
As for all business structures, there are always some disadvantages that may impact your business. To fully and proactively address them, a corporate attorney can review and advise accordingly. That said, here are a few of the most commonly held disadvantages of LLPs.
- Not always available. The LLP structure isn't available in every state. Where it is, it may only be available to certain professions or industries.
- More complex to set up and run. An LLP is more complex to set up and run than a sole proprietorship or general partnership. Partners need to formally register an LLP and pay the associated filing fees. An LLP also requires the creation of a formal partnership agreement. In some states, there are also ongoing reporting requirements for LLPs, which can be burdensome.
- Requires at least two partners. An LLP with two partners may have to be dissolved if one partner retires, dies, or otherwise leaves the partnership.
- High insurance premiums. An LLP only protects partners against the malpractice of others; a partner can still be sued for their own negligence. This typically means partners need to take out individual professional liability or malpractice insurance. In some states, an LLP must also obtain separate malpractice insurance. These insurance premiums can add up.
What Types of Businesses Are Best Suited as a Limited Liability Partnership?
Given their limited liability, especially in the event of malpractice, LLPs are useful to professions that rely on reputation. Some states prohibit certain licensed professions from forming a limited liability company (LLC), and so LLPs offer a useful alternative.
LLPs are common in the professional services industry. Examples include:
- Wealth managers
- Medical practitioners
- Real estate agents
In some states, only listed licensed professions can register as an LLP. If you're considering creating one, you should seek legal advice as to whether it's available in your circumstances.
Contact a Corporate Lawyer in Wisconsin Today
If you are considering establishing a limited liability partnership, make sure you do it right and know what your responsibilities are to avoid mistakes and legal challenges. Our business law attorney in Wisconsin will walk you through the process and provide ongoing legal services to best serve you and your business. Contact Heritage Law Office today either by filling out the online form or calling us at 414-253-8500 to schedule a free consultation.
Frequently Asked Questions (FAQs)
1. What is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a business structure formed by two or more partners. It combines the features of both a general partnership, in terms of management, and a corporation, in terms of liability. Each partner can participate in the management of the LLP, and their personal liability is shielded from debts or liabilities arising from the malpractice of another partner.
2. What are the advantages and disadvantages of an LLP?
The main advantage of an LLP is that it provides limited liability to its partners, protecting their personal assets from the partnership's debts and the malpractice of other partners. However, a partner's personal liability isn't protected against lawsuits arising from their own negligence. An LLP also requires a more formal structure than a general partnership, including a written partnership agreement.
3. Are LLPs suitable for all types of businesses?
No, LLPs are not suitable for all types of businesses. They are common in the professional services industry, where they provide a viable alternative to forming a limited liability company (LLC), which some states prohibit for certain licensed professions. It's crucial to seek professional advice before creating an LLP to make sure it's the right choice for your specific business circumstances.
4. How does a business form an LLP?
Forming an LLP usually requires a written partnership agreement that outlines the operating structure of the partnership and how profits are shared. It's essential to consult with a corporate attorney to navigate this process correctly and understand the legal responsibilities involved. At Heritage Law Office, we offer a comprehensive range of legal services to help businesses establish and grow, including advice on choosing the best business structure and assistance with forming an LLP.
5. How can Heritage Law Office help with my LLP?
Heritage Law Office provides an array of legal services to help your business move in the right direction. Our corporate lawyer will guide you through the process of forming an LLP, offering ongoing legal advice to best serve your business's needs. If you're considering establishing an LLP, contact us today to schedule a free consultation and learn how we can help you form and grow your business.