For those who don’t know, well, an LLP or Limited Liability Partnership is actually an organisation’s legal structure with incredible flexibility in legal and tax terms. The main goal of an LLP is to structure an organisation or company in a way that has less or negligible liability on partners of the company or business. That’s one way to look at it, but sure, there are other sides as well, and that’s precisely what we will be uncovering with this post where we’ll talk about all the possible advantages and disadvantages of limited liability partnership. Alright, here we go now.
Advantages of LLP
1. Limited Liability Protection
The biggest plus of having an LLP structured company is that you (aka the partners in the company) simply detach your personal assets from the company, which means that whenever things go south ways, governments or no one has the right to go after your personal assets, you know? Your house, car, cold hard cash, and all the other things that you have built up over the years, what about them? Well, they stay safe, no matter what happens with your LLP company. Simple as that.
2. Flexibility in Management and Ownership
Next, LLPs are all about being able to change things as needed. The terms of the partnership deal spell out how the money will be split and who will make what. This means you can change everything to fit the business’s goals and use the strengths of each partner. This management and ownership flexibility is what keeps your mind at ease when going with an LLP option, you know?
3. Tax Benefits
Tax cuts are great for everyone. It’s cool that LLPs don’t have to pay income tax directly. Instead, the partners’ personal tax returns are used to figure out their gains and losses. Corporations have to avoid being taxed twice, which means that both the company and the owners are taxed. You may also be able to write off business costs, which is always a plus.
4. Increased Credibility
Making your business look better by becoming an LLP can also help. An LLP makes you seem more serious and reliable than going it alone or being in a general partnership. This can help you get more funders, clients, and business partners, especially if you work in a field where trust is valuable, like law or consulting.
5. Operational Flexibility
It’s also easy for LLPs to change. The way it’s set up makes it easy to make changes to the relationship, like adding new partners or firing old ones. Being flexible is important for the business because it lets you take advantage of new chances without any problems by bringing in partners who can add value or expertise when it’s needed.
6. Corporate Ownership
One more big plus? An LLP can have partners that are businesses. Because business partners have more money and better strategies, this makes it possible for bigger investments and a stronger way of running things. It’s especially helpful for bigger businesses or professional firms that need a lot of money and smart management to grow.
Disadvantages of LLP
1. Mandatory Public Disclosures
Do you believe it? One big problem with an LLP is that you have to tell everyone (aka the public) about your finances. There you have it. LLPs have to file their financial records with places like Companies House in the UK, so everyone can see them. This very lack of privacy can be a big problem for partners who’d rather not talk about their money. If you put financial information out in the open, it could reveal private information about how the business is doing or not doing!
2. Costly Setup and Upkeep
Do you want to start an LLP? Get ready to get really loose with your money. But why? Well, simply put, setting up an LLP can be more expensive than going it alone or having a general partnership. Legal fees, filing fees, and the cost of writing up a specific partnership agreement are all things that come up. That’s not all, you’ll also have to keep up with regulations and do things like file yearly reports and keep a licensed office.
3. Challenges in Fundraising
You see, it is somewhat bad news but still, LLPs can’t sell stocks or other securities to attract buyers like big companies can. With this setup, it’s hard to get big amounts of money for projects or growth. LLPs often need to use their own money or borrow from banks, which can make it hard for them to grow and change their finances quickly.
4. Risky Business for Some Partners
In general, LLPs protect most partners from the effects of bills. But there’s a catch. “Designated members” aka the partners who are in charge, might be held responsible for anything in some situations, especially if they’re telling the company’s management what to do. Whether you’re personally guaranteeing a loan or failing to do your job as a manager, these situations could get you into a lot of trouble, so it’s important to know what you’re precisely getting into.
5. Profits Must Be Shared
You have to share the gains in an LLP. LLPs have to share their profits with their partners every year, while businesses can save their profits for a bad day. This forced sharing can make it hard to put gains back into the business or save money for later use, which can affect long-term financial security and strategy.
6. All About Teamwork
You can’t run an LLP by yourself, you need at least one other partner. That’s the only term here. If a partner quits, you might have to close the business if you can’t quickly find a new one. When a business depends on keeping a pair (or more), it can shake things up and make things less stable. Another thing is that if a key partner quits at the last minute, it could mess up daily operations and responsibilities.
Conclusion
That’s pretty much it for today. Now it shouldn’t be hard for you to understand why so many people go down the path to make their company an LLP one, right? It’s a great way to leverage legal as well as tax benefits if you know how to do so.
