Texas Business Attorney

Business Organizations Center - Texas Limited Liability Partnership (LLP)

Partnerships are similar to sole proprietorships in many aspects, but they have more than one owner. Typically, no paperwork needs to be filed with the government to form a partnership, but partners will usually want to draft a written agreement to lay out the structure of the business and the partners' rights and duties with respect to each other. When preparing the partnership agreement, it is vital that the partners consider and decide how to deal with such potential issues as distributing profits and debts, resolving disagreements between them, and continuing the business if a partner dies or leaves the partnership.

Partnerships are classified as either general or limited partnerships. In general partnerships, all of the partners have equal rights to manage the business, and they share the profits and losses equally, unless they specifically agree to different terms. Each of the partners is jointly and severally liable, which means that each partner can be held personally responsible for all of the debts and liabilities of the business, even if those liabilities were created solely by another of the partners.

The limited partnership, on the other hand, provides some protection against liability for some of the partners. Limited partnerships must consist of at least one general partner and at least one limited partner. The limited partners invest in the business and share in the profits, but only the general partners are allowed to manage the business. The general partners remain personally liable for the partnership's liabilities, but the limited partners are only liable for the amount that they invest in the business. Thus, the limited partnership structure is conducive to attracting investors.

The limited liability partnership (LLP) is a variant of the traditional limited partnership. Limited partners in a LLP may participate in running the business, but they are still protected from personal liability for liabilities created by other partners. The LLP form is currently very popular among law firms and accounting firms.

Pros:

• Relatively simple to form and manage.
• Can have more than one owner.
• Partners can combine their respective skills and resources.
• Business losses are deductible on personal tax returns.
• No "double taxation."

Cons:

• General partners are personally liable for business liabilities.
• Partnership ceases to exist if one partner leaves or dies.
• Cannot sell or transfer interest in partnership without consent from all partners and new partnership agreement.
• Potential disagreements between partners.

Summary

The different types of partnerships allow business owners opportunities to pool skills and resources, protect against personal liability, and avoid unnecessary taxes. If you are a business owner or potential business owner, you should seek the advice of a business attorney to determine how best to structure your business.

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Centrally located in the Arboretum area of north Austin, the Slater & Kennon law firm represents clients in Travis County, Bastrop County, Burnet County, Williamson County, and Hays County, including the cities of Austin, San Marcos, Bastrop, Burnet, and Georgetown.