What Does LLP Stand For

When people ask, "What does LLP stand for?" they are often starting to gather information about starting their own business. However, just giving a Limited Liability Partnership definition (LLP) is not enough for you to understand how forming such a company might benefit the entrepreneur. By learning the advantages and disadvantages of an LLP, a small business owner can structure the company to best suit the situation.

Limited Liability Partnership Definition
A type of business structure, an LLP combines the interests of several business partners into an entity that blends some of the most advantageous aspects of a corporation and a partnership. While a corporation requires certain rigid functions and actions to stay legitimate and a partnership brings up sticky liability issues, an LLP is more flexible for the smaller company, especially where taxes are concerned.

Advantages Of An LLP
One advantage that LLPs have over traditional partnerships is the issue of liability. The word "liability" in LLP means that each partner is protected from the misdeeds, debts and negligence of the other partner or partners.

Another advantage of an LLP is that it is not eligible for double taxation, as a corporation is. This means that a corporation will pay taxes on profits. When a corporation pays out dividends to partners or shareholders, that amount is also taxed. An LLP acts as a "pass through" organization, where the company passes profits to the members and taxes are just paid on the amount once.

Disadvantages Of An LLP
One of the disadvantages of LLPs is that they are state regulated-not necessarily a bad thing itself, but it means that each state regulates its LLPs differently from others. This leads to broad differences in a limited liability partnership definition according to the state that is regulating and legislating LLPs. Many states also have limitations on what kind of businesses can become LLPs. For example, some states specify that only service businesses, such as a law or architecture firm, can qualify for LLP status. States also charge annual fees to LLP companies.

There are also disadvantages for LLPs when it comes to expanding and growing the business; it is difficult to merge an LLP, and interests in the company are generally not freely transferable as it is in a corporation. The life of the LLP is generally only as good as the partnership of the members. Most regulations for LLPs state that, even if one partner withdraws, the entity is dissolved.

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