LLP and LP Partnerships in the USA

Besides the LLC and the Corporation, US law also recognises the Limited Liability Partnership (LLP), the Limited Partnership (LP) and the Partnership. These legal forms are particularly suitable for structuring relationships between several sole traders who wish to do business together, or between several investors who want to invest jointly but are tax-resident in different countries.

LLP – none of the partners is liable for the partnership’s debts.

LP – similar to a limited partnership in continental law, it has two types of partner: limited partners and unlimited partners. Limited partners are liable for debts, while unlimited partners are not.

Partnership – comparable to a general partnership, so all of its partners are liable for its debts with their personal assets and may act on its behalf.

Taxation LP – has two types of partner: limited partners and unlimited partners. Limited partners are taxed like shareholders of a C-Corp, and unlimited partners are taxed like members of an LLC.

A Partnership is taxed in the same way as an LLC. If you are interested in this type of entity, please get in touch via our contact form.

Choosing Between Partnership Structures in the USA

When people think of US business entities, they often think of LLCs and corporations. Partnerships, however, remain an important option, particularly for professionals working together and for investment arrangements involving several parties. Each type of partnership has its own balance of control, liability and administration, so it is important to choose carefully.

General Partnerships

A general partnership is the simplest form. The partners share in the management and profits of the business, and each partner can usually act on behalf of the partnership. The main drawback is that partners are generally personally liable for the partnership’s obligations, which can put their private assets at risk.

Limited Partnerships

A limited partnership has at least one general partner, who manages the business and generally bears unlimited liability, and one or more limited partners, whose liability is usually limited to their investment provided they do not take part in management. This structure is often used for investment funds and property projects, where investors want to contribute capital without running the business.

Limited Liability Partnerships

An LLP gives partners protection against certain liabilities of the partnership and of other partners. In some states, LLPs are available only to particular professions, such as lawyers and accountants. The extent of protection also varies by state, so the rules of the state of formation must be checked.

Tax Treatment

Partnerships are generally treated as pass-through entities for US federal income tax purposes. The partnership itself files an information return, while profits and losses are allocated to the partners, who report them on their own returns. Foreign partners may face withholding and filing obligations in the United States as well as tax in their own country, so the overall position should be reviewed before the partnership is formed.

Points to Consider

• How much personal liability each partner is willing to accept
• Who will manage the business day to day
• Where the partners are tax resident
• Which state’s law is most suitable
• What the partnership agreement should say about profit sharing and exit

If you are considering a partnership in the USA, contact eTuls. We can explain the options, help you form the entity and support you with ongoing compliance.