What You Should Know About LLLP
An LLLP is an acronym that stands for “limited liability limited partnership” and is a modification of a general partnership or limited partnership that reduces liability for those in a partnership arrangement. Under general partnerships, all partners share liability for the actions of other parts and employees that fulfill actions on behalf of the partnership. This can cause a host of problems related to debts and potential damages that all partners would be responsible for. Under an LLLP, this threat is eliminated and partners are only liable up to the extent of their contribution to the partnership. In addition to the limiting of liability, which is already provided by an LLP, there is a hybrid arrangement of general partners and limited partners with the limited partners only liable for their contribution to the partnership. General partners also receive limits on liability through an LLLP arrangement.
How does an LLLP differ from a general partnership?
In a general partnership, liability for all parts of the company, including debts is shared by the partners. Therefore, in the event of bankruptcy, all partners, even non founding partners are liable to have assets seized to pay debts. Liability is a factor in a general partnership as all partners share liability for both their and the actions of the other partners. Additionally, partners can also be held liable for the actions of employees. Actions committed by the partner while performing a function for the partnership would hold all partners liable, regardless of their contribution or input on the event.
What is the different in liability in relation to LLP and LLLP arrangements?
Under an LLLP arrangement, general partners enjoy limits on their liability whereas in other, similar arrangements, general partners would be faced with unlimited liability. Further liability is at the discretion of the individual partners such as personal guarantees on company debts. Limited liability prevents partnership assets from being imperiled in personal lawsuits or creditor decisions.
Can I form an LLLP?
LLLPs are not available in every state and a business lawyer will be able to explain what must be done to register an LLLP. Some states will require LLLPs to identify itself its name, such as Acme Pencil Supplies LLLP. Twenty-one states allow for LLLPs and California will accept LLLPs formed out of state. The twenty-one LLLP allowing states have differing procedures to form an LLLP with some allowing the outright formation of an LLLP and others requiring a conversion from an LLP to an LLLP.
A lawyer can serve a valuable function in LLLP formation by helping to create comprehensive agreements that determine the contributions and rights of each partner and provisions for the addition of new partners. These provisions will determine the distribution of assets, shares and other property owned by the partnership. For states such as California with special provisions for the acceptance and registration of LLLPs a lawyer will be necessary to ensure compliance in the LLLP agreements as well as to inform you of the relevant state taxes on LLLPs, in this case, $800 California state tax annually.