Limited liability partnerships and limited liability companies are two common ways to classify small businesses. While the two are similar in name, they are structurally different regarding management requirements, liability protections, tax benefits, and more.
It is vital for small business owners to thoroughly comprehend the structural differences between LLPs, LLCs, and sub-LLCs to correctly establish their company from a legal, tax, and management perspective. Working with business litigation attorneys like Ritter Spencer Cheng can ensure business owners understand varying legal structures thoroughly. Read below to learn more about LLPs, LLCs, and sub-LLcs.
What is a Limited Liability Partnership (LLP)?
A limited liability partnership, or LLP, is a partnership-based business structure that offers partners legal protection from the partnership’s liabilities, meaning each partner’s liabilities are limited to the amount they each individually put into the business. LLPs involve the formation of a general partnership, which is made up of two or more people who work together and do not require legal filings. These partnerships are common among licensed professionals like accountants, attorneys, and architects, allowing partners to pool resources and lower the overall cost of business expenditure.
The definition and regulation of LLPs vary by state, as certain regions limit the formation of LLPs to certain professionals. For example, in California, Nevada, and New York, only specific licensed professionals, like the above-mentioned accountants, attorneys, and architects, are permitted to operate as an LLP. Meanwhile, some states allow any business with two more partners to form an LLP, while others don’t permit the LLP business structure in any capacity.
What is a Limited Liability Company (LLC)?
A limited liability company, or LLC, is a business structure that creates a financial boundary between the owner and the company, legally protecting the owner from being held personally responsible for the company’s debts or liabilities. LLCs are common entities that show similarities to both corporations and partnerships. Like corporations, LLCs afford the owners valuable legal protection but typically require less paperwork and fees. These business owners are referred to as members who experience a flow-through taxation process in which they report the company’s profits and losses on their individual tax returns.
The formation of LLCs is permitted throughout the country. However, each state has unique laws regulating LLC’s liability, privacy, and taxation. Most states do not limit ownership as they allow individuals, corporations, foreigners, foreign entities, and sometimes even other LLCs to become members of an LLC.
What is a Series LLC?
A series LLC is a business structure that consists of a parent LLC with one or more sub-LLCs, or series, that branch off from it. Owners of series LLCs can produce an unlimited number of series, each with its own separate assets, members, and operations. Regarding limited liability, each series is its own entity, meaning one series is protected from being liable for another series’ assets, even though each is under the same umbrella LLC. A series LLC structure is an excellent option for LLCs operating multiple businesses or investments because it allows them to contain the risk within each entity. Series LLCs are common among real estate investors who seek isolated liability protection for each of their separate rental properties and investment firms.
Similar to LLPs, series LLCs are only permitted in certain states. The following states allow the formation of series LLCs: Alabama, Arkansas, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Virginia, Washington, D.C., and Wyoming. Meanwhile, some other states only allow series LLCs in limited capacities. For example, California does not allow the formation of series LLCs but will allow series LLCs created in other states to do business in California.
Ritter Spencer Cheng is a team of commercial business attorneys in Dallas, Texas, who can help your business settle disputes involving trademarks, copyright, bankruptcy, commercial litigation, and more. Our experienced attorneys develop practical and actionable strategies to help companies navigate any legal disputes that could hinder their success. Learn more about our practice areas by connecting with our team of business attorneys at Ritter Spencer Cheng today.