What is a Limited Liability Partnership?

by Sean Ross

1 min read

If you’re starting a small business, think about whether you can use a limited liability partnership. This business structure preserves the benefits of a typical partnership but eliminates certain drawbacks. A partnership setup in general is more suitable for a new small business than a corporation formation. Operating as a partnership, your small business doesn’t pay separate taxes beyond what you pay on business profits as personal income tax. If your business is a corporation, you have double taxation–once the corporate income tax and then, the personal income tax on dividends. Moreover, as a partnership investor, you can actively engage in daily business management, whereas as a shareholder of a corporation, you may have to delegate management responsibilities to the board of directors that in turn hires corporate officers. Keep in mind, you may want to pay attention to liability issues with regular partnerships. Unlike shareholders of a corporation who have limited liabilities with any losses capped at their shares of investments, as a partner of partnership, you may have unlimited liabilities. The recourse can potentially go beyond your partnership investments and include personal possessions. Using a limited liability partnership, you’re not responsible for other partners’ misconduct or negligence and are liable for any debts or obligations only to the extent of your share in the partnership investments. Setting up your new small business as a limited liability partnership, you can take advantage of the benefits of both a partnership and corporation, including pass-through taxation, active-management rights, and limited liabilities.

References & Resources

Related Articles

Tips for Reporting Partnership Income

If you run your own business with a partner, it’s important to…

Read more

How to Set up a Limited Partnership Agreement In Canada

Most businesses entities in Canada are sole proprietorships. If you don’t want…

Read more

Limiting Liability: What Type of Small Business Insurance Do You Need?

No small business owner wants to experience the dreaded situation of facing…

Read more