What is a Limited Liability Limited Partnership?

A limited liability limited partnership (LLLP) is a relatively new type of business structure. Partners, general or limited, are typically invulnerable to the debts, liabilities, and obligations of other partners, as they are all offered the same protections afforded in a limited liability partnership.

Choosing the proper business entity is crucial for the growth and success of your business. Keep reading to determine if the LLLP structure is right for your business.

What is a Limited Liability Limited Partnership?

An LLLP is a business entity, much like an LLC or corporation. Like those types of entities, LLLPs are formed by filing with the secretary of state and appointing a registered agent.

LLLPs are considered a hybrid of other entity types, the limited partnership (LP) and the limited liability company (LLC). Ultimately, determining if the LLLP structure is right for your business is a decision you will need to make with the guidance of your tax and legal advisors.

To understand a limited liability limited partnership, you first need to understand limited partnerships. In an LP, there is at least one partner and one limited partner. General partners manage the business in a day-to-day sense, while limited partners are typically silent.

One of the primary disadvantages of an LP is that the general partner is exposed to unlimited liability for any debts the partnership accrues. To reduce liability and increase protection, investors sometimes create a limited liability company and name the LLC as a general partner while electing themselves as the manager. That strategy is often costly and time-consuming because it requires forming and maintaining multiple entities. However, if multiple entities are in the best interest of your business, our Entity Manager software can help.

If multiple entities are not the course forward, 28 states allow the limited liability limited partnership structure. In an LLLP, general partners and limited partners are shielded from personal liability in the event of legal action against the business or debt. However, it’s important to note that certain paperwork, like debt covenants, could override the liability protection.

What Are the Advantages and Disadvantages of a Limited Liability Limited Partnership?

As with other types of business entities, LLLPs have their own set of pros and cons. We’ll start by taking a look at the advantages.

The biggest advantage of choosing the LLLP structure is the limited liability protection offered for the general partner. Any lawsuits brought against the company or misconduct by the other general partners are not brought against the general partner, as they are shielded from personal liability. LLLPs may also buy and sell stocks, bonds, and mutual funds like most other business entities.

The biggest disadvantage of the LLLP entity structure is that it is not recognized everywhere. As a result, the structure may not be a viable option in the state you’re looking to form or register your business. In addition to that, because the structure is relatively new, there is not a large body of research to analyze in terms of reliability and longevity. That can make it seem like a risk, especially for new business owners who may not fully understand how the structure works. Fortunately, as LLLPs become more widely recognized, more information is becoming available.

Who Should Form an LLLP?

The LLLP business structure is most common in the real estate industry. Many groups of investors looking to establish commercial or residential buildings, for example, don’t want to be responsible for the company’s debts when they can only lose their investment amount. Other types of businesses likely to take advantage of the LLLP structure include law firms, major media companies, asset management companies, research labs, and car dealerships.

LLLP formation guidelines and requirements vary by state, as with every type of business entity. Like all entities, LLLPs will need a registered agent to receive notice of lawsuits and other legal or government notices.

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Key Takeaways

• Limited liability limited partnerships are a relatively new business structure and are not recognized in every state.
• Partners in an LLLP are shielded from most personal liability in the event of debt or a lawsuit.
• As with other business entity types, a registered agent is required.