LLP: The "Partnership LLC"
In Texas, Limited Liability Partnerships are not technically a new business entity. So what is it then? An LLP is a general partnership (GP) or limited partnership (LP) that chooses to register with the state as a limited liability partnership. A GP or LP "chooses" to register as an LLP by submitting a form to the Secretary of State. LLP registration only lasts for one year, at which time it must be renewed.
LLPs give personal liability protection to general partners for liabilities incurred by the partnership. In other words, a partnership, whose general partners are usually personally liable for any liabilities taken on by the partnership, are protected by registering with the state as an LLP.
By registering as an LLP, the general partners of a GP or LP are provided similar liability protections as an LLC. (LLC rules explained in more detail here) Therefore, it is wise for a partnership to protect its general partners from personal liability by registering with the state as an LLP .
However, since general partnerships are not required to register with the state, (see partnership formation rules here) if a GP elects to become a LLP, the GP is now subject to Texas franchise tax laws. This does not affect LPs because LPs already pay franchise taxes. Before registering as an LLP, you should check with your tax accountant for any tax ramifications.
Overall, LLPs are a great idea for any GP or LP that wishes to protect their general partners from personal liability of partnership debts, contracts, and any other business the partnership conducts. It is important to remember that each year the LLP must be renewed with the State, or you will lose your protections, and also registering a GP as an LLP may cause a GP to pay more in taxes. Contact your attorney today for more information on LLPs.
Charlton M. Messer, Attorney at Law
This post is for educational and informational purposes only.