Limited Liability Partnerships (LLP) and General Partnerships (GP)

By Jason Watson, CPA
Posted Saturday, August 3, 2024

General Partnerships (GP) have unlimited liability exposure whereas Limited Liability Partnerships (LLP) have, as the name would suggest, limited exposure for the limited partners. There is also the limited liability limited partnership (LLLP or triple “L” P) which extends liability protection to the general partner as well. Remember, this is financial exposure not necessarily other perils such as tort liability. More about that later.

We won’t discuss these entity types much either since they have fallen out of favor lately. Many attorneys are now creating two classes of members within a MMLLC to mimic the different groups that a true partnership would create. So, it walks and smells like an LLP but it is actually a MMLLC, without the burden of complication and cumbersome ordering rules. For example, “A Members” are the old-school version of General Partners, and “B Members” are the equivalent of Limited Partners. Most of the attorneys we work with don’t create partnerships anymore, including family limited partnerships (FLPs), opting instead for the use of MMLLCs.

Throughout this book we might refer to members as partners. More often than not we are referring to a member of a multi-member LLC. While partner and member are technically different, and the entity type will ultimately decide member or partner, these words are often interchanged by business owners; we are doing our best to reverse the trend.

What gets really obnoxious is shareholder and member. A C corporation has shareholders. An LLC has members. A C Corp taxed as an S Corp has shareholders (that one is easy). But an LLC taxed as an S Corp has members and shareholders. From an entity perspective, we use members. From a tax return perspective, we use shareholders. Why? Historically before the existence of LLCs, an S corporation’s underlying entity was predominantly a C corporation.