Key Takeaways

  • An LLP (Limited Liability Partnership) shields partners from each other’s negligence while allowing direct management roles.
  • An LLLP (Limited Liability Limited Partnership) extends limited liability to both limited and general partners, offering broader protection.
  • LLPs are widely used by professional firms like law practices and medical groups, while LLLPs are more common in real estate development and asset management.
  • Not all states allow LLLPs, and formation rules differ by jurisdiction.
  • LLLPs can provide extra liability protection but may involve more complexity and less widespread recognition than LLPs.

To understand LLLP vs LLP, you first need to know that when a limited liability partnership, also known as an LLP, is formed, it means some of the partners have a limited liability. In some cases, all of the partners will have a limited liability. In this type of partnership, it simply means that none of the partners are liable or responsible for the actions of the other partners. Nor are they responsible for the negligence of the other partners.

This is much like the liability held by shareholders of a corporation. A key difference, however, from corporate shareholders is that in an LLP, the partners do have the power to directly manage the business. In simple partnerships, you will see the owners hold certain legal responsibilities; this applies to partners as well who are taking on managerial roles in an LLP. If you don't want the liability, you will need to take on a silent role and not be involved in any type of managerial role.

Are LPs and LLPs Different?

In some countries, you will find that LPs and LLPs are extremely distinct from one another. When this happens, the LLP allows for all partners to have some sort of limited liability, but the LP will mandate that at least one of the partners have unlimited liability. Because variations arise from one county to the next, it's important to review local and federal laws to see which ones apply. This will help you determine which type of partnership can best suit your needs when forming a company or corporation.

State Laws Affecting LLLPs and LLPs

LLPs and LLLPs are not uniformly recognized across the United States. While LLPs are widely available in most states, LLLPs are only authorized in certain jurisdictions. For example, states like Delaware, Florida, and Nevada allow LLLPs, but many others do not. This means if you form an LLLP in one state, you may face challenges operating in another state that does not recognize the structure.

When deciding between an LLLP vs LLP, always check your state’s statutes. In some states, an LLLP can only be created by converting an existing limited partnership and filing an election with the secretary of state. Others require specific statutory authorization.

What Types of Business's Are LLPs?

There are several types of business's that commonly use LLPs. Some of the most popular types include:

  • Group medical practices
  • Professional service providers
  • Law firms

Common Uses for LLLPs

LLLPs are less common than LLPs but can be valuable in certain industries. They are often used in:

  • Real estate development projects, where investors want liability protection while keeping a traditional partnership tax structure.
  • Asset management and investment funds, where general partners manage day-to-day operations without risking unlimited personal liability.
  • Family businesses or estate planning entities, where LLLPs can protect family assets while allowing generational ownership.

Because LLLPs offer added protection for general partners, they can be appealing in ventures with significant financial or operational risks.

Understanding an LLLP

There is also such a thing as a limited liability limited partnership, also known as an LLLP. In this type of partnership, the general partners themselves receive the same level of liability protection as those who are in an LLP. LLLPs are not a common type of business and they are generally only seen in the real estate industry. In the United States, LLLPs are a new type of entity and they are viewed as a modified version of an LLP.

When an LLLP is formed, it will have at least one general partner and at least one or more limited partners. The general partners will take on managerial roles, while the limited partners will carry a financial stake in the company. LLLPs are not recognized in all states, thus being another reason you need to research local laws to see if you can or cannot form one.

In the states where it is legal to form an LLLP, there are generally two ways to create one. A statute will give direct authorization for the LLLP to be formed or the limited partner will file for limited liability protection according to the state statute that recognizes LLLPs.

Advantages and Disadvantages of LLLPs

LLLPs carry distinct benefits and drawbacks compared to LLPs:

Advantages:

  • Protects both general and limited partners from personal liability for business debts.
  • Maintains pass-through taxation, avoiding double taxation at the entity level.
  • Useful in industries with high liability exposure, such as construction or property development.

Disadvantages:

  • Not recognized in all states, which can limit expansion or interstate operations.
  • May create confusion among investors or lenders unfamiliar with the structure.
  • Filing fees and compliance costs may be higher than a standard LLP.

By contrast, an LLP offers broad recognition and simplicity but does not protect managing partners as fully as an LLLP.

What Is the Difference Between an LLLP and an LLP?

There is a difference between LLLPs and LLPs. An LLP, although it may sound odd, does not, in fact, have limited partners. An LLLP, however, does. An excellent way to think of the difference and to help you understand how the two are different from one another is to view an LLP as a general partnership that takes on various types of limited liability protections. An LLLP, on the other hand, does take on limited liability protection, but it's a limited partnership. Also, the primary difference lies in the fact that the two types were different entities before they elected for their general partners to have limited liability.

It used to be that companies would help general partners from being exposed by setting up limited liability companies and naming them as their general partners and then they would elect themselves to manage these companies. Not only could they benefit from the limited partnership, but they would deter themselves from being attached to any company debts. If the limited partnership was to close its doors, the general partner would be another company, not an actual person. The limited liability company would have very few assets and it would not be a big deal if it had to file for bankruptcy.

Choosing Between LLLP vs LLP

The decision between forming an LLLP vs LLP depends on your business goals:

  • Choose an LLP if: You run a professional services firm (like a law office or medical group) where each partner wants liability protection from the actions of others. LLPs are widely recognized and simpler to set up.
  • Choose an LLLP if: You operate in real estate or investment ventures where general partners want the same liability protection as limited partners. However, you must confirm your state allows LLLPs.

Ultimately, an LLP offers greater recognition and accessibility, while an LLLP provides added liability protection but with more restrictions and complexity.

Frequently Asked Questions

  1. Is an LLLP better than an LLP?
    Not necessarily. An LLLP provides broader liability protection, but LLPs are simpler and more widely recognized. The right choice depends on your business type and location.
  2. Can every state form an LLLP?
    No. Only certain states authorize LLLPs, while LLPs are generally recognized nationwide.
  3. Do LLLPs and LLPs have different tax treatment?
    Both are typically taxed as pass-through entities, meaning income and losses flow to the partners’ personal tax returns.
  4. What industries commonly use LLPs vs LLLPs?
    LLPs are popular in law, medicine, and accounting. LLLPs are more common in real estate development, asset management, and family partnerships.
  5. How do I decide whether to form an LLP or LLLP?
    Consider your state laws, business risk level, and goals. LLPs are better for professional practices, while LLLPs may suit risk-heavy ventures needing stronger liability shields.

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