Advantages and Disadvantages of Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. A limited liability partnership provides legal protection for partners against being held personally responsible for their company’s debts or financial losses.

The finances of the owners and the business are separated in such a way that the business itself becomes responsible for its liabilities, debts and financial losses. The partners in a limited liability partnership are are under no legal obligation to cover any liability or loss incurred by the business. This means that their personal assets can’t be seized in order to repay the debt incurred by the business. The only potential loss to the partners is the capital they invested in the business.

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Advantages of a limited liability partnership

Advantages of a limited liability partnership include:

  • Legal protection of personal assets due to limited liability
  • No minimum starting capital requirement.
  • No limit on number of partners in the business as compared to other business types.
  • Compliance requirements are simpler as compared to those of a private limited company.
  • Partners have flexibility in business ownership since they have the authority to decide how each individual will contribute to business operations. Managerial duties can be delegated equally or separated based on each partner’s level of experience.
  • The business is deemed a separate legal entity that is capable of buying, renting, leasing, and owning property. The business can employ staff, enter into contracts, and even be held accountable for any losses.

Disadvantages of a limited liability partnership

  • does not have the concept of equity investment or shareholding. This means that investors cannot invest in an LLP as shareholders. The LLP would have to rely on funding from promoters and bank loans.
  • Applicable for specific occupations only, such as accountants, solicitors, architects, consultants, surveyors and lawyers.
  • No privacy since the financial accounts have to be submitted to Companies House for the public record.
  • It must have at least two members and if left with one member, the LLP may have to be dissolved.

Sydney Chako

Mathematics, Chemistry and Physics teacher at Sytech Learning Academy. From Junior Secondary School to Tertiary Level Engineering Mathematics and Engineering Science.

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