If you own and run your own business, you’ve dedicated your life to building up your company to be as efficient and as profitable as it can be. There are a lot of important decisions you have to make as the leader of your company, and sometimes you can’t hope to make the all of the right decisions all of the time. One of the most important factors in your company’s success and profitability is how it is structured. The amount you pay in taxes and the benefits your company receives are dependent on the way your company is organized.
What is LLP?
One of the most common company structures is the LLP, which you’ve probably seen before, usually after a company’s name. LLP stands for “Limited Liability Partnership,” and confers some corporation-like benefits on a partnership. Because it offers the partners or owners limited liability, the LLP confers a degree of protection from the actions of other partners.
The Benefits of the LLP
The primary benefit conferred by the LLP is that of limited liability, which protects partners from being responsible for the actions of other partners. Limited liability is one of the traditional advantages of the corporation. Unlike a corporation, though, in which stock holders must elect a board of directors to run the company, a limited liability partnership allows for direct control by the owning partners.
To clarify, the concept of limited liability means that the company’s investors (in this case, the partners running the company) are not responsible for the entire value of their company’s debts, only their investment in the company. Additionally, it protects a partner from the impropriety of other partners. For example, if a partner has been secretly embezzling money without the knowledge of the other partners, the other partners are not responsible for those crimes.
The limited liability partnership first became prominent in the American business world after the Savings and Loan crisis in Texas in the 1980s. As banks faltered, people attempted to get their money back from the law firms and accountants who had advised the banks. In order to protect these people from the possibility of personal bankruptcy, the government helped organize these firms into limited-liability partnerships which afforded them a degree of protection from litigation.