LLP Main Characteristics: Limited Liability Partnership Adavantages & Benefits - Setting-Up a LLP and LLP Registration Requirements. What Is the Difference Between an LLC & an LLP. What is a Limited Liability Partnership?

When choosing a business form, you may want to consider the limited liability partnership (LLP), one of the newest entity options. While the LLP is similar to the limited liability company (LLC), there are some important differences that may make the LLP an inappropriate choice for the small business owner. In many states, owners of an LLP have only a reduced form of limited liability from the claims of the business's creditors. This "limited shield", as it is sometimes called, does not afford the owners the same protection they would enjoy in either the LLC or the corporation. In addition, in many states, the business interests of the owners of an LLP are afforded less protection from the claims of the owners' personal creditors, as compared to the LLC. Finally, California and New York limit the use of LLPs to professionals, thus eliminating the LLP as a choice for other business owners.

(In California, the term "professionals" is defined narrowly to include only lawyers and accountants, further restricting the availability of the LLP there). Many years ago, the law prohibited professionals such as accountants and lawyers from operating in the corporate form. As a result, virtually all of the largest and oldest CPA and law firms in this country were formed and operated as general partnerships. This, of course, meant that the general partnership had unlimited personal liability for all of the business's debts, but professionals who wanted to form a business with each other had no other choice. When the law was finally changed to allow professionals to incorporate benefits, many firms were reluctant to make the change for tax reasons, since the federal tax law deems a conversion from one form (partnership) to another form (corporation) a potentially taxable event.

In addition, such a conversion would involve re-titling all of the firm's assets from the general partnership to the new corporation. These large general partnerships have offices in every major city in the country, hundreds of partners and millions of dollars of assets. Accordingly, the transfer process alone would be complex and expensive enough to dissuade these forms from making the conversion.
Similarly, it was believed that the Internal Revenue Service might deem conversion from a general partnership to an LLC to be a conversion to another form, and thus a taxable event. Through lobbying by accounting firms, law firms and other professionals operating in the general partnership form, the limited liability partnership (LLP) was developed. The conversion process from a general partnership to an LLP benefits is unique in the law.

The general partnership simply registers as an LLP. Technically, the old entity does not dissolve, and a new entity is not created. The old entity continues to exist, but is now subject to a new set of laws (i.e., those governing the LLP). The conversion does not trigger a taxable event because there is no change in the entity. Moreover, because of this registration process, none of the assets needs to be re-titled, making the conversion especially simple and inexpensive. The LLC vs. the LLP. An LLP is not the same form as an LLC. Important differences generally make the LLC a better choice for the small business owner. While all of the owners of both an LLC and an LLP have limited liability from the claims of the business's creditors, in many states the quality of the limited liability is not the same.

Our practitioners understand the special characteristics of liability and damages issues in intellectual property matters. We analyze financial and market data to evaluate claims for lost profits, reasonable royalty and other damages caused by any infringement or misappropriation of intellectual property. In addition, we advise our clients on how to better manage and extract value from intellectual property assets. Income from royalty payments is a stream of revenue that is often overlooked, partly because businesses do not know which products may be licensed for income, or whether the products that are licensed are generating the appropriate amount of revenue.
First, the proposed LLP would have only one of the four federally recognized corporate characteristics: limited liability. Although we view limited liability as a very important indication of corporate status since it can be conferred only by legislative act, we acknowledge that the proposed LLP would not have complete limited liability.

Its members would still be fully liable for their own negligence or misconduct as well as that of those they supervise. The degree of limited liability here, in the absence of any other corporate characteristics, is not sufficient to treat as a corporation an entity that is otherwise a partnership for state law purposes. This result is supported by the partnership treatment afforded by the Department to foreign limited partnerships that are treated as partnerships and not as corporations for federal tax purposes. These foreign limited partnerships may have as many as two of the federally recognized corporate characteristics, whereas the proposed LLP would have only one.

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