‘Pluses’ and ‘Minuses’ of LLPs: Important Facts
March 31, 2017
Limited Liability Partnership is one of the most common business organisation forms in the world. In general, this type of entity requires a single business idea and two or more natural or business persons who are called partners. Undoubtedly, every jurisdiction has a peculiar practice and legal background concerning how to establish and operate an LLP. Nevertheless, in comparison there are quite a lot of similar elements.
That is why we would like to discuss several advantages and disadvantages of LLPs as business organisation form, avoiding binding to a particular country.
There is a plenty of reasons which motivate people from different countries to choose limited liability partnership as a basis of their business. We will focus on the most significant and the very first “pluses”. Here they are:
1. Number of Partners
No limit on the amount of participants is a distinctive feature of a limited liability partnership. We consider this feature an advantage, because the amount of liability can be evenly spread in case something goes wrong with the business.
2. The Less Liability, the Better
As you may see from the name of this business entity, the liability of the partners is limited. Limited partners are not personally liable for the losses of business which is held by the LLP. Additionally, there is no liability for business debt. But business profits can be divided between the partners and every partner pays tax on his share in the profit.
3. Tax Advantages
Another great ‘plus’ of operating an LLP is the tax benefits. As a rule, limited partnerships are not regarded as a separate legal entity; consequently, they have no tax obligations. Every partner should file tax documentation for the business and independently determine the amount of the tax paid according to his share in the income from partnership activities.
4. High Flexibility
Often, you can find reference to a flexibility of limited liability partnerships as its defining feature. This flexibility is usually manifested while limited partner receives the right to decide how much he needs to put into the business and the amount of time he can give to this business. Limited partner may have a consultation of professional of any king at his discretion without depending on the position of another partner.
But at the same time there may be some drawbacks to choosing LLP structure in particular cases:
Different states may restrict limited liability partnerships in carrying out activities on their territory. In addition, there may be a legal problem that some states refuse to recognize LLPs as a business organisation forms. Fortunately, there are not many jurisdictions of such kind.
2. Extra Taxes
In some cases, large tax limits may be provided for partnerships of this type in some territories. Additional taxes on income or dividends, stamp duties etc. may arise.
3. Less Trustworthy
Another large ‘minus’of limited liability partnerships is that counterparties, customers and other partners could not appraise this type of business reliable. There is a possibility, that companies may cause higher level of a respect in particular circumstances.
On the other hand, there are some important and interesting facts concerning limited partnerships in different countries worldwide. For instance, it should be noted that:
• Only professional accountants or lawyers are authorized to operate on behalf a limited liability partnership, registered in Canada.
• First LLP in Japan arose in 2006, the Japanese law did not provide for such a form of activity. Appropriate legal basis was adopted in 2005.
• The federal United States of America has a unique LLP regulation, which allows the states to accept local legal acts concerning creation of such types of businesses. State of Delaware with its offshore status may be a good example due to this.
• The main document in LLP’s structure is Partnerships’ Agreement and in some jurisdictions could be an obligation to register these agreements in domestic state for the partners.
• The partner who is personally liable for handling taxes of a partnership could be brought to legal responsibility in case of poor performance or failure to fulfill these obligations.
While choosing this type of business, remember one thing: points which are generally regarded as disadvantages by the experts in the field of international law and tax planning, may show up a significant advantage in your particular case. And note, that general information in the Internet is not enough for making deliberate business decisions.
Thus, before starting company formation process, it is recommended to ask professionals for a consultation!
Offshore Express Company provides introductory consultation and assistance with the selection of suitable jurisdiction, which corresponds your personal needs. Enjoy our individual service and become a part of our customer’s family now.