Limited liability partnerships

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A limited liability partnership is a type of partnership in which each partner’s liability is limited to the total value of their contributions. In other words, the liability of each partner does not place their personal assets at risk, only the assets they have contributed to the partnership. This can vary to some degree, depending on the jurisdiction and the provisions of the partnership contract. For example, some jurisdictions stipulate that each limited liability partnership must have a general partner, whose liability is unlimited.

Another distinguishing characteristic of limited liability partnerships is that all partners have the right to directly participate in the management of the business. This is different from the position of corporate shareholders, who elect a board to manage the company on their behalf, and of silent partners in a limited partnership, who have no management rights.

Limited liability partnership owners

Generally, all partners in a limited liability partnership are considered equal owners with equal rights and liability limits. This can be altered to a certain degree by the laws of a particular jurisdiction and by the relevant partnership agreements.

As mentioned earlier, some jurisdictions may demand that one partner becomes ‘general’, i.e. accepts unlimited liability. Other variations may affect some forms of unlimited liability, e.g. in some US states individual partners may be personally liable for an LLP’s international torts (violations of civil law).

Although they may seem minor at first sight, these variations can significantly change the advised course of action when it comes to incorporating a limited liability partnership. This is why we strongly recommend that you contact Confidus Solutions’ team of international experts, who will provide a detailed analysis of the company registration requirements in each particular jurisdiction.

Functions of a limited liability partnership

The main function of a limited liability partnership is to boost the partners’ chances of increasing their individual profits and security in comparison to what they would gain if they operated individually. Entering a partnership agreement may also allow the partners to compensate for the weaknesses and utilise the strengths of each individual: one of the partners may bring significant financial assets, another may be able to offer well-developed manufacturing facilities, while another may have a wide network of clients, etc.

Other than that, limited liability partnerships have no special functions and are mainly distinguished from other legal business structures by the way the roles are distributed between partners. A limited liability partnership can engage in any type of business activity, including trade, services, manufacturing, etc.

Advantages of a limited liability partnership

There are two main advantages of a limited liability partnership:

  • Co-operation
  • Asset protection

In a limited liability partnership, partners co-operate to achieve more than they would individually, compensating for their weaknesses and combining their strengths. A limited liability partnership can generate more capital investment by bringing in new limited partners, greatly expanding the company’s financial options.

Another important aspect is the protection of the partners’ assets. Since they can freely control their contributions, a partnership enables them to make a profit without taking major financial risks. Furthermore, as all the partners have equal management rights and no single partner holds any exclusive powers, limited liability partnerships tend to be more democratic. Such a structure provides good opportunities for balanced management, as each party is kept in check by everyone else.

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