Limited Liability Partnership Agreement Template + Pros & Cons

The Limited Liability Partnership (LLP) is an entity that offers legal protection for business owners, who can limit their personal financial liability in order to take on larger risks.
This template will help you draft a limited liability partnership agreement by providing basic information about the LLP, while also outlining its pros and cons.

The “limited partnership agreement form” is a document that establishes the terms of a limited liability partnership. It consists of an introduction and clauses, as well as an appendix with attachments. The document can be used to establish the terms of a partnership in general or for specific purposes.

A limited liability partnership (LLP) is a professionally regulated partnership that shields participants from personal responsibility resulting from business choices. These legal entities are formed to particularly assist licensed professionals such as Attorneys, Accountants, and Architects and operate as pass-through businesses for tax reasons. An LLP is simple to form and manage.

Below is a link to a free LLP agreement template. Rocket Lawyer, on the other hand, is a good place to go if you want a state-specific agreement and individualized legal guidance. Their program will generate a ready-to-sign LLP agreement in about 10-15 questions. They also provide low-cost legal advice from professional lawyers.

Go to Rocket Lawyer for more information.

Limited Liability Partnership Agreement Template

Every limited liability partnership (LLP) requires an LLP agreement to officially arrange the numerous participants into a legal partnership. This contract outlines the partners’ rights and duties, as well as their individual ownership holdings and partnership governance processes. We’ve put up a sample agreement for your use, but we encourage that you get your own legal counsel.

This free template includes everything you’ll need for a solid partnership agreement, including:

• Defining the partnership’s scope
• determining the contribution of each partner
• Ownership stakes are listed.
• Defining the tasks and duties of management
• Providing general rules and regulations

Most small to medium-sized partnerships may benefit from using a partnership agreement form like the one supplied. Some big or specialized businesses should undoubtedly seek legal advice. Because the requirements of a limited liability partnership agreement differ by jurisdiction, you should contact an attorney and the secretary of state’s website to learn about the precise requirements in the state where you want to form.

Now you may get a free template.

Advantages and disadvantages of LLPs

4 Benefits of a Limited Liability Partnership (LLP)

Many licensed professionals in disciplines such as law, accountancy, and architecture prefer to form an LLP. Limited liability partnerships (LLPs), like limited liability corporations (LLCs) and other officially structured enterprises, serve to protect participants from personal responsibility. They’re simple to set up and manage, making it simple to obtain funds from new partners, and they don’t have to pay corporation income tax.

The following are some of the benefits of an LLP agreement:

1. Personal Liability Is Limited

Partners’ personal assets are safeguarded under an LLP from creditors and other responsibilities of the partnership. LLPs are particularly useful for protecting partners’ personal assets from the risk of other partners’ activities (including carelessness or wrongdoing). Partners, on the other hand, are still individually liable for any partnership debts or loans.

A limited liability partnership agreement protects participants from personal responsibility as a result of events such as:

• Company debts that haven’t been paid
• Debts that the partnership has taken on (unless personally guaranteed by partners)
• Damages incurred as a consequence of doing business
• Debts that have been taken on by other partners

The liability protection provided by an LLP agreement is comparable to that provided by other legal organizations such as:

• LLCs: Members of LLCs may be exposed to personal responsibility if they are actively involved in the company’s management.
• Shareholders in S-Corporations (S-Corps) are normally protected from personal responsibility to the same extent as partners in a partnership are.
• Shareholders of C-Corporations (C-Corps) enjoy comparable liability protection.
• By establishing their firm as a limited liability limited partnership (LLLP), partners get an extra layer of personal responsibility protection.

Another benefit of limited liability protections in LLPs is that LLP partners do not lose their personal liability protection if they are actively involved in the partnership’s operation. This isn’t the case with a limited partnership, for example (not to be confused with a limited liability partnership).

However, there are several circumstances under which a partnership’s “corporate veil” might be penetrated, exposing participants to personal culpability. These are some of the examples:

• Fraud: If you or your company defrauds consumers, suppliers, or investors, you may be held personally liable indefinitely.
• Failure to comply with LLP requirements: If you fail to comply with the LLP’s statutory administration requirements. Yearly meetings with official minutes, publishing annual reports, and so forth are typical examples.
• Mixing personal and partnership money: Keeping your personal and company finances in the same account might expose you to significant risk. It’s a good idea to create a distinct company checking account to help keep your funds separate.
• Using personal funds to satisfy partnership obligations: Using personal funds to pay company costs might expose you to greater risk.
• Inadequately capitalization your partnership at the outset: If you don’t establish your partnership with enough money to satisfy its commitments, you risk being held personally accountable for its debts and expenses. Read about utilizing your 401(k) to start a company to see how you may utilize your savings to support a new enterprise.

2. Simple to Create and Manage

In certain states, forming an LLP is more complicated than in others. LLPs, on the other hand, are easier to form and manage than corporations. LLPs are often formed online via the websites of the state’s secretary of state. You may get an employment identification number (EIN) for the partnership via the IRS website if you desire dedicated financials (or a company checking account).

The following are the particular actions you must take to form an LLP:

• Choose where you want your partnership to be registered.
• File with the secretary of state in that state.
• Obtain an EIN from the Internal Revenue Service.

Thankfully, you may hire a lawyer or utilize a service like Rocket Lawyer to assist you with this procedure. Rocket Lawyer can guide you through the procedures of forming and managing your limited liability partnership (LLP) or connect you with a legal expert to address particular problems as they arise. If you’re unclear about the following stages in forming your LLP, speak with a lawyer at Rocket Lawyer.

Go to Rocket Lawyer for more information.

3. There is no corporate income tax.

For tax purposes, all partnerships are pass-through businesses. At the partnership level, no taxes are paid; all tax burden is passed on to individual partners based on their proportionate ownership.

While you will have to pay 15.3 percent self-employment tax on partnership revenue, it will be far less expensive than paying 21% corporate income tax plus extra personal income tax on profit distributions.

The following are the taxes you must pay on revenue produced in a partnership:

• Personal income tax (10% -30.6%): You must pay income tax for the proper tax band depending on how much money you make.
• Self-employment tax (15.3 percent): If you’re self-employed via a partnership, you must pay the entire FICA tax on any income earned, although most W-2 workers only pay half of the FICA tax.
• Franchise or excise taxes (varies by state): Some states or municipalities mandate partnerships to pay franchise or excise taxes, depending on the size and type of the firm.

4. Is it possible to get funds from other sources?

It might be practically hard to attract more money in less formal organizations such as sole proprietorships or even limited liability companies (LLCs). Potential investors have nothing to purchase and no mechanism to safeguard their investment since there is no equity or partnership shares to sell. In an LLP, however, this is not the case.

You may add additional limited partners to a limited liability partnership at any time. Furthermore, as is usual in law firms, you might compel new partners to buy-in to your partnership. This allows you to not only grow your firm by bringing on new personnel, but also possibly obtain additional finance.

New partners may not even need to be personally engaged in a company’s activities in certain situations. While it is often simpler for C-Corps to obtain outside investors, some LLPs raise funds from more passive investors who have a less active role in the partnership’s activities.

4 Drawbacks of a Limited Liability Partnership (LLP)

LLPs have certain drawbacks to consider in addition to their advantages. Other company structures may be appropriate for your individual circumstances due to the restricted applicability of LLPs or their relative complexity to create in certain states. If you’re in a sector where typical partnerships don’t exist, such as law or accounting, you’ll be better off with a different company structure.

The following are some downsides of limited liability partnership agreements:

1. Restrictions on Applications

LLPs are often used by the following professions:

• Accountants
• Architects
• Attorneys

The most significant disadvantage of LLPs is that they are limited to particular sorts of enterprises. LLPs may only conduct particular regulated professions in most states, such as accountancy, law, and architecture. Some states may not even allow you to form an LLP if you aren’t involved in one of these companies.

2. More difficult to form than a limited liability company

An LLC is more convenient for most small firms than an LLP. This is due to the fact that LLCs are often simpler to apply for and establish. They also provide a higher level of flexibility. LLPs are usually solely employed by legal, accountancy, or architectural businesses. LLPs may only be used for these reasons in particular states.

LLPs have additional constraints that might make them less appealing company forms, apart from their restricted usage in specific professions. Limited liability partnerships, for example, must be exactly that: partnerships. An LLP can’t normally be formed with only one partner.

LLPs can need more documentation than other company forms, such as LLCs, in order to demonstrate that you have the necessary licenses to conduct your profession. An LLP, like an LLC, is obliged to have yearly meetings, record minutes, and file reports on a regular basis.

If you wish to form an LLP, there are a few procedures you must do. You may always hire competent specialists to assist you with setting up or operating your partnership. Rocket Lawyer is one of the leading suppliers of these services. They may assist you in drafting a partnership agreement, filing it with the state of your choice, and keeping your partnership up to date in the future.

Go to Rocket Lawyer for more information.

3. A Tax System That Is Less Flexible

The lack of flexibility in the tax structure is an LLP’s disadvantage. Owners of an LLC, for example, have the option of choosing how they wish to be taxed. LLC owners must pay self-employment tax, but they may also be taxed as pass-through entities like partnerships. Alternatively, they may decide to file taxes at the corporate level using an S-Corp election or another designation.

Owners of certain businesses, such as LLCs, have the option of choosing a tax structure that best suits their needs. These options are not available to LLP partners. They must be taxed as pass-through entities (and pay self-employment tax, of course).

LLPs, on the other hand, have a particular advantage over other forms of businesses, such as C-Corps, which are taxed at a rate of 21% on earnings. Because all tax responsibility is passed on to individual partners, LLPs do not pay income tax at the partnership level. Each year, partners get Schedule K-1 forms and file personal tax returns to record their portion of the partnership’s revenue.

4. Additional Licensing Charges

LLPs, like other businesses, are subject to state costs when they are formed. Costs range from $50 to $500 for forming a company, with extra fees imposed when you submit mandatory yearly filings. The majority of filings are done online via state websites, however the procedures and costs vary greatly. An LLC’s annual filing costs, for example, might vary from As with other companies, various states charge fees to set up LLPs. Formation fees are often $50 to $500 with additional fees assessed when you submit required annual filings. Filings are typically submitted online through state websites but filing requirements and fees vary widely. Annual filing fees for an LLC, for example, can range from $0 to $820. to $820 each year.

The following are typical state costs for an LLP:

• Fees for formation range from $50 to $500.
• Fees range from Annual filing fee: $0-$820 to $820 per year.

The expenses for forming and maintaining an LLP, which may be substantial, are distinct from the fees for professional license as an accountant, architect, or attorney. These costs are also distinct from the self-employment tax you must pay, as well as any possible franchise or excise taxes imposed by certain states.

In certain areas, a local agent is also required to operate on behalf of the company. If you’re filing in a different state, you’ll probably need to engage a local agent who will charge you a fee.

An LLP may not be the most cost-effective way to arrange your firm due to the needed expenses for creation and yearly filings. Depending on your circumstances and the nature of your firm, it may be preferable to start off as a single proprietorship. You may always change to an LLP or another form as your company expands.

Alternatives to a Limited Liability Partnership (LLP)

Consider various options before determining whether an LLP is best for you. Other methods may be simpler and less expensive to set up or manage. Others, such as LLCs, S-Corps, and C-Corps, are more accessible to those outside of specific licensed professions, have more flexible tax structures, and are not limited to the same number of partners as an LLP.

Some Alternatives to a Limited Liability Partnership (LLP) include:

1. Limited Liability Company (LLC) vs. Limited Liability Partnership (LLP)

Owners of LLPs and LLCs are both protected from personal responsibility. When LLC owners are actively involved in the administration of the firm, they may forego certain safeguards, which is not the case with LLPs. Filing costs and administrative procedures, such as annual meetings and minutes, are comparable for LLCs. LLC owners, on the other hand, have a say in how they’re taxed.

2. S-Corporation vs. Limited Liability Partnership

S-Corps are more like regular businesses with stockholders than LLPs, which are a kind of partnership. S-Corps do not have the same qualifications for practicing licensed professions as LLPs. S-Corps have the same tax structure as LLPs, with no corporate earnings taxed. This offers S-Corps the same benefits as LLPs over C-Corps.

3. LLP vs. C-Corporation

The C-Corporation is the most stable of all business arrangements. Forming and administering it is the most expensive and time-consuming. C-Corps are also by far the most costly from a tax standpoint. Before any earnings in C-Corporations are given to shareholders, they are taxed at a rate of 21% by the federal government. Those gains are taxed again at the individual level after they are dispersed.

4. Limited Liability Partnership (LLP) vs. Limited Liability Partnership (LLP)

A limited liability limited partnership is a relatively new kind of business entity. The distinctions between LLPs and LLLPs are subtle, but they all revolve on liability protection. In essence, there are two types of participants in a partnership: general partners and restricted partners. Limited partners do not exist in LLPs; instead, all partners are referred to as “general partners.” LLLPs, on the other hand, have limited partners who are protected from responsibility.

5. Sole Proprietorship vs. Limited Liability Partnership

A sole proprietorship is the only option that is not an officially formed firm among the options provided. Except for reporting your self-employed income on Create 1040 of your Schedule C and acquiring any applicable permits, you do not need to register or make yearly filings to form a sole proprietorship. A sole proprietorship, on the other hand, does not provide any liability protection to its owners, which is a significant difference from an LLP.

Who Should Use an LLP?

An LLP is ideal for groups of lawyers, accountants, or architects who wish to collaborate while avoiding liability for each other’s errors. LLPs are also ideal if you want your firm to pass-through tax liabilities to individual partners, regardless of whether you choose a centralized or decentralized management structure.

You must have more than one partner to form an LLP, but LLPs are also beneficial if you intend to have a changing set of partners. You may offer individuals the choice of joining and buying in, which helps you generate money, and then leaving later under a limited liability partnership agreement.

Frequently Asked Questions about LLP (FAQs)

What Is the Difference Between a Limited Liability Partnership (LLP) and a Limited Liability Company (LLC)?

A limited liability partnership (LLP) is a business entity created by licensed professionals such as attorneys, accountants, and architects. A limited liability company (LLC) may be created to run practically any kind of business or to keep property. LLPs are handled and taxed like partnerships, although LLCs have more flexibility in how they are taxed. In addition, LLC members who are actively involved in the operation of the organization generally forego personal liability protection.

Check out our post on LLPs vs. LLCs and How to Choose Between the Two for additional information on how a limited liability partnership agreement compares to an LLC.

What exactly is an LLLP?

A limited liability limited partnership, or LLLP, is a partnership with a limited responsibility. LLLPs are very new and have been shown to provide partners with additional liability protection in certain situations, but for most small business partnerships, an LLP will be the preferable choice.

What is the Purpose of a Limited Liability Partnership (LLP)?

LLPs are created when two or more persons desire to practice law, accountancy, or architecture jointly. It is simpler to qualify for and set up an LLC rather than an LLP for persons beginning enterprises in other areas.

How is a Limited Liability Partnership (LLP) taxed?

LLPs are taxed like partnerships, which means that each year, the tax burden for partnership income is passed on to individual partners depending on their ownership percentage. On any money earned via the partnership, partners must additionally pay personal income tax and self-employment tax.

What Should a Partnership Agreement Contain?

Everything you need to explain the nature of your partnership and its purpose should be included in your partnership agreement. A list of all partners, their relative ownership participation levels, and ownership holdings should also be included in the agreement. Any regulations or limits on partner conduct or corporate monitoring should be clearly established, as well as management positions. In a nutshell, whatever you’d need evidence of in the case of a partnership disagreement.

Final Thoughts

LLPs are ideal for developing professional partnerships in certain licensed professions. LLPs, like S-Corps and certain LLCs, are taxed as pass-through entities. They’re simple to establish up, allow for additional partners, and restrict participants’ personal responsibility. Before considering whether an LLP is ideal for you, you should think about the disadvantages.

Rocket Lawyer is a great place to go if you need assistance forming an LLP. They provide extensive template paperwork that are suited for your business and state, and they can guide you through any industry-specific challenges you have or answer any concerns you may have. They also provide one-on-one assistance and reduced legal prices.

Go to Rocket Lawyer for more information.

The “limited partnership agreement checklist” is a document that outlines the terms and conditions of a limited liability partnership. The template includes information on the responsibilities of each partner, as well as the rights and obligations of each partner.

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