When starting a business you might want to consider a Limited Liability Partnership (LLP) structure for your proposed business. An LLP is one of the newest and most attractive forms of business entities available to entrepreneurs today.
As the name suggests, a Limited Liability Partnership protects the business partners from
personal liability for outstanding obligations in business. This is where an LLP is different from general partnerships. In a general partnership, each partner is held personally liable for the company’s debts. So, if the business is sued, each of its partners are equally liable for the debt; which means that even if you invested only 10% in the business, your liability is 100%. That is the reason why many businesses avoid general partnerships, if they can help it.
In a Limited Liability partnership, each partner is limited only to the extent of their investment in the partnership. Thus, their personal assets are far more secure in this kind of a partnership. Since each country has a slightly different law governing LLP’s, the liability of the partners involved changes from place to place. In general, a partner of an LLP is not responsible for any debts, financial obligations, or liabilities another partner may have incurred due to their negligence, misconduct pr wrongful acts.
Many countries extend the liability protection only against negligence claims. What this means is that a partner can be personally liable for other claims, such as contract claims. Another topic discussed by the law is the profits. The profits earned by the limited liability partnership are distributed evenly among the partners. This distribution is for tax purposes as the partnership is not taxed separately. When the partnership is taxed as a whole and not separately, it avoids double taxation which often happens to large corporations.
Registering a limited liability partnership costs less because you do not need a lawyer to register any business as an LLP. This is very useful for small businesses that are short on cash and time. Thus, tax advantage, cost reduction and limited liability are the defining characteristics of an LLP. Additionally, a Limited Liability Partnership has more flexibility when it comes to developing ownership structure. This is because unlike the general partnership where every partner has equal rights, in an LLP, there is one designated member. The other partners are not actively involved in the running of the business. Reporting requirements are also comparatively less when it comes to LLPs.
If you are in a partnership, you can opt to change it to a limited liability partnership by registering with government authorities and fulfilling certain requirements. You will be required to provide proof that the partnership has enough assets to cover any claims and that it has obtained adequate liability insurance. Aside from the proof of assets, businesses must also pay a registration fee in order to become a Registered Limited Liability Partnership or LLP. Professional partnerships like lawyers, dentists, engineers, accountants and the like must register as Professional Limited Liability Partnerships. In any case, these professionals prefer limited liability partnerships because they limit the liabilities of partners who are innocent of negligence and any other form of malpractice.
As the name suggests, a Limited Liability Partnership protects the business partners from
personal liability for outstanding obligations in business. This is where an LLP is different from general partnerships. In a general partnership, each partner is held personally liable for the company’s debts. So, if the business is sued, each of its partners are equally liable for the debt; which means that even if you invested only 10% in the business, your liability is 100%. That is the reason why many businesses avoid general partnerships, if they can help it.In a Limited Liability partnership, each partner is limited only to the extent of their investment in the partnership. Thus, their personal assets are far more secure in this kind of a partnership. Since each country has a slightly different law governing LLP’s, the liability of the partners involved changes from place to place. In general, a partner of an LLP is not responsible for any debts, financial obligations, or liabilities another partner may have incurred due to their negligence, misconduct pr wrongful acts.
Many countries extend the liability protection only against negligence claims. What this means is that a partner can be personally liable for other claims, such as contract claims. Another topic discussed by the law is the profits. The profits earned by the limited liability partnership are distributed evenly among the partners. This distribution is for tax purposes as the partnership is not taxed separately. When the partnership is taxed as a whole and not separately, it avoids double taxation which often happens to large corporations.
Registering a limited liability partnership costs less because you do not need a lawyer to register any business as an LLP. This is very useful for small businesses that are short on cash and time. Thus, tax advantage, cost reduction and limited liability are the defining characteristics of an LLP. Additionally, a Limited Liability Partnership has more flexibility when it comes to developing ownership structure. This is because unlike the general partnership where every partner has equal rights, in an LLP, there is one designated member. The other partners are not actively involved in the running of the business. Reporting requirements are also comparatively less when it comes to LLPs.
If you are in a partnership, you can opt to change it to a limited liability partnership by registering with government authorities and fulfilling certain requirements. You will be required to provide proof that the partnership has enough assets to cover any claims and that it has obtained adequate liability insurance. Aside from the proof of assets, businesses must also pay a registration fee in order to become a Registered Limited Liability Partnership or LLP. Professional partnerships like lawyers, dentists, engineers, accountants and the like must register as Professional Limited Liability Partnerships. In any case, these professionals prefer limited liability partnerships because they limit the liabilities of partners who are innocent of negligence and any other form of malpractice.
1 comment:
Nice information about company formation. You make some very good points. When anyone takes a step into building a business. They look to form from partnership companies to limited liability companies.
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