What is an LLLP?

A limited liability limited partnership (LLLP) is a type of legal structure for businesses. People may refer to a legal structure as a business structure, business entity, or business ownership form.

The LLLP is a newer type of business structure that offers a different twist on the traditional partnership. In an LLLP, all members of the partnership benefit from limited liability. With limited liability, investors and partners are only financially responsible for business liabilities up to the amount of money they put into the company. So, if your LLLP becomes insolvent, business creditors cannot come after your home, vehicles, or personal accounts.

Other types of legal structures with limited liability include limited liability companies (LLCs), corporations, limited partnerships (LPs), and more. Sole proprietorships and general partnerships are business structures that do not offer limited liability. If you have a sole proprietorship or a general partnership, your personal assets could be on the line for your company's debts and lawsuits.

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General Versus Limited Partners

Like other types of partnerships, LLLPs have both general and limited partners. It can be helpful to be clear on the difference between these two types of partners before going any further.

A general partner is involved in the day-to-day operations of a business. They have authority and responsibility for company issues.

A limited partner is a silent partner who invests money in the business. Limited partners do not get involved in daily operational decisions.

If you have an investor who simply wants to put money into your business without becoming involved with the company's operations, this person is well suited to be a limited partner.

LLLPs Versus LPs

LLLPs should not be confused with LLPs or LPs. This can seem like an alphabet soup, but it's important to understand the distinctions among these partnership types.

An LLLP is actually a type of limited partnership (LP). In some states, it's possible to convert an LP into an LLP by filing some additional paperwork.

Traditional limited partnerships have both limited partners and general partners. The limited partners enjoy personal asset protection through limited liability. But the liability of the general partners for the company's lawsuits and debts is unlimited. This is a major drawback for the general partners in an LP.

The main advantage of an LLLP over an LP is that all partners in an LLLP enjoy limited liability. In other words, the general partners can manage an LLLP's daily operations without becoming personally liable for the company's obligations.

However, many owners of LPs and LLPs have a general partner that is not an individual. Instead, these companies make an LLC or a corporation their general partner. In this case, there is no individual on the hook for either the LP's or the LLLP's business obligations. Instead, the LLC or corporate general partner risks liability for the company's debts and obligations. This may be the reason why some states feel that the LLLP structure offers an unnecessary added layer of protection to LP members.

LLLPs Versus LLPs

LLLPs and limited liability partnerships (LLPs) offer similar liability protections. But an LLLP has both general partners and limited partners. With LLPs, there is no distinction between general partners and limited partners. In this way, an LLP is like a general partnership. All partners share the responsibilities of the business. But unlike a general partnership, an LLP offers limited liability for its members.

The most important distinction between an LLLP and an LLP is that LLLPs have general partners and limited partners. By contrast, LLP members are all equal partners.

Where are LLLPs Available?

LLLPs are only recognized in about half of the states. You should check with your secretary of state to see if this business structure is available where you do business. If you operate in many different states, you should probably opt for a different type of legal structure. Or you should find out whether LLLPs are legally recognized in all the states where you operate.

To illustrate, consider the populous state of California. California does not allow for the formation of an LLLP within the state. However, its Uniform Limited Partnership Act of 2008 allows out-of-state LLLPs to operate in California. Meanwhile, business owners can create LLLPs in nearby New Mexico, according to state statutes.

As you may have noticed, state business laws are subject to change. Regulations on business formation also vary widely among jurisdictions. Before deciding on your business structure, you should make sure that it's available in your state. If you have any doubts, it would be wise to consult with a local business attorney.

Why Form an LLLP?

An LLLP is useful if you want to form a partnership that has both general and limited partners who all have personal liability protection.

LLLPs are most common in the real estate industry. This structure allows real estate investors to limit their financial liabilities even if they get involved in the day-to-day operations of the business. When many partners get together to build hotels or apartment buildings, this structure enables them to manage the project without putting their personal assets at risk. Some of the investors may be offsite or even overseas. Therefore, they want to make an investment without risking personal liability.

You should be aware that there can be some tax complications to starting an LLLP. The tax treatment of different business entities varies by state. So, you should talk to your accountant or an attorney if these tax issues are a concern.

Why Form an LLC?

For many small businesses, a limited liability company (LLC) is an excellent legal structure. Like an LLLP, an LLC gives limited liability to business owners. Another advantage to LLCs is that individuals and state agencies widely recognize this structure. LLCs offer a flexible structure and are easy to dissolve too.

If all of your co-owners want to be involved with managing your business, then an LLC will be preferable to an LLLP. With an LLLP, at least one of the members would be a silent, or limited, partner. Unlike an LLLP, you can even form an LLC with a single member.

Setting up an LLC is a relatively simple process. Typically, you need to submit forms, a filing fee, and your articles of organization to your secretary of state.

Articles of organization are not difficult to write. This document will contain basic information about your business. You will need to provide:

• The company's name
• The names of the members
• The nature of the business
• Your registered agent's name and contact information

Some states even offer a fill-in-the-blank articles of organization form to simplify the process. Once you have your articles of organization drafted, you can usually register your LLC online. Just check your secretary of state's website for instructions.

How an Attorney Can Help

Creating a new legal structure for your business can offer several worthwhile benefits. You might have some legal questions on the pros and cons of the many types of legal structures. A business attorney can answer those questions and provide expert insights. They can also help you form the legal structure of your choice and draft any agreements you may need.