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Limited Liability Partnership (LLP)

A limited liability partnership, or (LLP) as it is called, is formed when a business is owned and operated by two or more individuals, and is comprised of both general partners and limited partners.

A limited liability partnership is governed by specific laws within the state in which the partnership is formed.

It gives the assets of the limited partners protection if the partnership gets into financial trouble.

As with the general partnership, the general partners manage the day to day operations of the business and assume responsibility for the debts and other obligations of the partnership. In other words, the general partners run the business.

The limited partners maintain responsibility conducive to the amount of their investment and have no control over the daily operations of the company.

A partnership agreement should be drawn up by an attorney and the limited partnership documents should be filed with the state.

The agreement should clearly spell out how ownership of the company is to be shared and what role the limited partners are going to play.

It should state what happens if one of the partners should want to withdraw from the partnership, how his assets in the company are to be valued and who is to make that decision.

The agreement should also state how long the withdrawing partner should have to wait before he is paid and whether or not it will be in increments.

Taxes are not paid by a limited partnership but are passed on through the individual partners.

The limited partnership taxes are filed on an Internal Revenue Service Form 1065 and each partner reports his profits or losses on Schedule K-1 of Form 1065.

The word partnership is evoked because those who are involve in the partnership share the good fortunes of the business as well as the bad fortunes.

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