How does an LLP work?

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When creating a new business, it is one of the first and important legal decisions you make to determine which type of business unit to start. Partnership is a popular option for businesses with many owners. That said, limited liability partnership registration can be a particularly good option because they provide legal protection that ordinary participation does not tolerate.

LLPs are particularly common among commercial businesses, such as architecture, law, and accounting firms. Read on to learn more about how an LLP works.

How does limited liability participation work?

The best way to understand a limited liability partnership registration is to look at how it compares to other types of partnerships. If your business is run by two or more people, and you are not registered with the state, then by default you have a general partnership.

In a general partnership, all partners manage the business simultaneously and are equally responsible. Each partner is solely personally responsible for the debts and obligations of the business and the actions of every other partner. 

This is a much higher obligation for each partner to shoulder, so many opt for a limited liability partnership instead. In a limited liability partnership, the partners are not personally liable for the debts and obligations of the business.

Partners in an LLP can certainly lose their investment if the business does not do well, but each partner’s assets are protected from creditors. To create an LLP, however, you need to register your business with the state.

Keeping this in mind, it is important to understand that there is another variation on one partnership called limited partnership. A limited partnership consists of two types of partners – general and limited. The general partner is personally liable for the actions of the other partners and the debts of the partnership. Limited partners invest in the company and are only responsible for the amount of their investment. Limited participation is popular among family-owned businesses and real estate developers.

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