As the next installment in our discussion on corporate structure, in this article, we will cover A Limited Liability Partnership (LLP). The LLP takes business structure one step further than a Limited Partnership. An LLP is a relatively new type of business structure that combines the flexibility of a partnership with the limited liability of a corporation. This hybrid structure has become increasingly popular in recent years. However, it structure usually limits its usability to professional services firms, such as law firms and accounting firms.
What Makes It An LLP?
In an LLP, the partners have limited liability for the debts and obligations of the business and other partners. This means that their personal assets are protected if the business incurs debts or is sued. This limited liability is similar to what shareholders have in a corporation or members have in a limited liability company. One unique feature of an LLP is that partners can limit liability to only their own actions. For example, if one partner screws up, the LLP can isolate that partner and push liability solely on that partner. This is highly beneficial to professions like attorneys and accountants where individual liability is high.
At the same time, an LLP provides the flexibility of a general partnership. Partners in an LLP have more control over the day-to-day operations of the business and can decide how profits and losses are distributed. This flexibility allows partners to tailor the business to their specific needs and goals.
Another benefit of an LLP is that it is taxed like a partnership. This means that the business itself does not pay taxes on its profits. Instead, partners report profits and losses on their personal tax returns. This can result in lower overall taxes for the business and its partners.
To form an LLP, partners must file a registration with the state in which they wish to do business. The registration typically includes the names and addresses of the partners, the name of the business, and the business’s registered agent. Some states also require an operating agreement, which outlines the rights and responsibilities of each partner. However, even if your state doesn’t require it, we always suggest that you have an attorney draft one. This helps protect you and your partners from future internal issues, especially over money.
Is The LLP Right For You?
While an LLP provides many benefits, it is important to note that it is not suitable for most gym businesses. In some states, only certain professions, are required to form LLPs. Fees associated with forming an LLP are often higher and some states require yearly registration renewal fees for LLPs. Additionally, some states require that at least one partner in the LLP have unlimited personal liability. This is not good for gym owners. Gym owners typically want the company to maintain unlimited liability.
In conclusion, a Limited Liability Partnership is a relatively new business structure that provides the flexibility of a partnership with the limited liability of a corporation. It is popular among professional services firms and provides many benefits, including limited liability, flexibility, and pass-through taxation. However, it is not suitable for all businesses and requires careful consideration before forming. It is unlikely that an LLP is right for you as a gym owner. However, if you want to consider it further, we suggest that you reach out to us so we can better understand your situation.