There are certain states in which limited liability partnerships are a unique option for professionals, but the protection they provide varies from state to state. Read here to find about the LLP Registration In India.
Limited-liability-partnerships (LLPs) may be worth considering when you compare types of partnerships. However, there are some significant differences between an LLP and a limited liability company. LLPs are technically partnerships, so at least two partners are required.
LLP owners often have only a limited form of se-your-business-structure-to-limit-liability against claims from the company’s creditors in many states. The “limited shield,” as it is sometimes called, does not provide as much protection as an LLC or a corporation would.
LLPs in many states also have less protection against the claims of personal creditors than LLCs, so the business interests of their owners are less protected.
Finally, California and New York limit the use of LLPs to professionals, eliminating the LLP as an option for other business owners.
In the past, many professions were not allowed to incorporate, preventing them from using a corporate shield to protect themselves. As a result of the LLP, older professional partnerships can convert to limited liability status without incurring tax consequences, as well as without incurring the costs associated with transferring assets from the old partnership to the new one.
There is no other process in the law that allows a general partnership to convert into an LLP. Registration as an LLP is the only difference between a general partnership and an LLP. There is no dissolution and no creation of a new entity technically. Despite continuing to exist, the old entity now falls under a new set of laws (i.e., those governing the LLP). There is no change to the entity as a result of the conversion, so there is no taxable event. Aside from that, no assets need to be retitled due to this registration process, making the conversion particularly straightforward and inexpensive.
The LLC vs. the LLP
There is a difference between an LLP and an LLC. Small business owners generally find LLCs to be a better choice due to important differences.
While both LLCs and LLPs have limited liability, the quality of the limited liability is lower for LLPs in many states. It’s best to avoid creating an LLP in a state where you live or conduct business, since your business entity doesn’t have to be created there.
LLPs are protected by the “full shield” in other states just as LLCs and corporations are. State legislatures are increasingly providing full shield protection.
Liabilities of individuals. In many states, LLP owners’ business interests are less protected from the claims of their personal creditors than those of LLC owners. An LLC can be formed in a state that protects the owner’s business interests from personal creditors. The LLP does not offer this protection, as no state provides it for LLP owners.