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Understanding LLP Meaning
In business, it’s possible that you come across a company name or business name with an “LLP” in it.
You wonder, what does LLP mean?
In fact, LLP is an acronym for Limited Liability Partnership.
Many accounting firms and law firms will have the LLP acronym in their firm name, such as Smith & Klein LLP.
A limited liability partnership is a type of business structure allowing entrepreneurs and business owners to work together in a business.
Many lawyers, accountants, engineers, architects, wealth managers, insurance brokers, and other types of professionals may use the limited liability partnership structure to work together in a business.
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LLP Acronym In Business
What does LLP stand for?
An LLP is an acronym for a Limited Liability Partnership which is a type of partnership that extends limited personal liability to all partners, including the general partners.
In other words, in a limited liability partnership or LLP, all the partners in the business will have limited personal liability.
As such, if the partnership fails to pay its debt or assumes its liability, the creditors cannot personally pursue the partners to seize their personal assets or income.
Doing Business As LLP
Many professionals who rely on their reputation tend to use an LLP as the business structure to operate their business.
Typically, a group of professionals will get together and execute a written partnership agreement where they define their rights and obligations in being a partner in the firm.
Depending on where the LLP is formed, it’s possible that the LLP will have annual reporting and other compliance requirements.
When an LLP is formed, the partners will then work together in building the business.
By pooling their knowledge, resources, and assets, the partners can benefit from the economies of scale allowing them to further grow the partnership.
In many LLPs, you have junior partners and employees that help the partners achieve the partnership’s mission.
One of the main reasons why professionals tend to choose an LLP over other types of business entities is the flexibility that they have in managing their partnership.
Also, the partnership is a flow-through entity for tax purposes allowing the partners to flow through the partnership’s income to the partners.
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LLP For Limited Liability Protection
As the name suggests, a limited liability partnership offers the partners limited liability.
This is a major distinction between a limited liability partnership (LLP) and a general partnership (GP).
In an LLP, the creditors can only pursue the assets of the partnership to recover debt or satisfy a financial or legal obligation.
On the other hand, when a general partnership is sued, the general partners’ personal assets can be seized by the creditors to satisfy the business debt.
For this reason, many professionals will choose the LLP business structure so they can benefit from the limited liability protection.
There’s one exception where a partner in an LLP can be personally sued and it’s if the person has individually wronged the partnership or has acted with negligence.
When a partner is sued in tort, the partner can be personally held responsible for the damages caused.
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LLP In Company Name
When you see LLP in a company name, it means that you’re dealing with a limited liability partnership.
From a legal perspective, doing business with an LLP means that you’re doing business with a separate legal entity.
For example, when you sign a contract with a separate legal entity, it means that it’s the legal entity that is responsible for the contract, not the business partners.
If something goes wrong, you’ll need to pursue the LLP for damages or to seek performance rather than the partners behind the LLP.
LLP vs LLC
What is the difference between an LLP vs LLC?
In essence, an LLP stands for “Limited Liability Partnership” whereas an LLC stands for “Limited Liability Company”.
An LLP is a form of partnership where the partners have limited liability protection.
It’s a business structure that offers some of the protections of a corporation and remains flexible as a general partnership.
An LLC is a limited liability company that is a type of company you can form in many jurisdictions in the United States.
An LLC is a separate business entity from its owners, offers them limited liability protection, and can be taxed like a corporation or partnership.
An LLC is essentially a hybrid between a corporation and a partnership.
The main differences between LLPs and LLCs are with respect to the application of limited liability protection, company management, and taxes.
Takeaways
So there you have it folks!
What does LLP stand for?
An LLP stands for “Limited Liability Partnership” being a formal structure that offers business partners some legal protection in doing business together.
LLPs are very common among licensed professionals such as lawyers, accountants, engineers, wealth managers, architects, and so on.
In some jurisdictions, licensed professionals may not be authorized to form an LLC or another type of business entity and so an LLP is a way they can formalize their partnership and benefit from limited liability protection.
With an LLP, you have limited liability protection (which is similar to a corporation) and you have a flow-through entity for tax purposes (which is similar to a general partnership).
Now that you know what is the meaning of LLP and why it appears in company names, good luck with your research!
