A partnership, as we all know, is a kind of business in which the liability for the business is shared by two or more partners. A limited liability partnership (LLP) is a special kind of partnership that can be formed by two or more persons.
An LLP business is run by one active partner and some other limited partners. The active partner takes care of day to day activities of the company and also manages the finances. The limited partners provide capital investment and receive a share of the profit, depending on the percentage of their shares in the company.
An LLP enjoys the usual benefits that any partnership business would enjoy. The greatest benefit is the exemption from business-related taxes. An LLP business does not get taxed. Only the partners running the business have to pay taxes based on their monthly income from the LLP.
In an LLP business, all partners except the active partner are safe in case a lawsuit is filed against the company. The active partner has to take all the responsibility for paying the amount of the lawsuit and even his/her personal assets can be affected by this. The other limited partners, however, only have to sustain the risk of losing their investments. This is different from a general partnership business, where the partner with the highest amount of money in his/her hands has to take up the responsibility of paying a greater amount in case of a lawsuit. This makes LLP business comparable to a relatively safe investment.
An LLP business has some drawbacks as far as the limited partners are concerned. The limited partners cannot state how the company should be run, irrespective of their percentage of share in the company. The active partner runs the show alone. A limited partner can become an active partner in order to exercise control over the internal affairs of the company. But in that case, liability protection will no longer apply to him/her.
An LLP business can be safe for a lot of people, but it is very restrictive in nature. However, if the puppet-like role suits someone just fine, and the liability protection seems to be a great benefit, LLP business is the best business option one could have at hand. The investment will be safe unless there is a lawsuit against the company, and some good monthly returns can be hoped for.