What is an LLLP? 2 Main Benefits of a Limited Liability Limited Partnership

In this episode of Coffee with Carl, attorney Carl Zoellner goes over the benefits and drawbacks of LLLPs.

 

Updated October 27, 2020

The LLLP (limited liability limited partnership) business entity is not nearly as common as LLCs in the field of asset protection, but it certainly can be a useful tool under the right set of circumstances.

Limited Partners in LPs

At its core, the LLLP is a limited partnership. Generally, limited partnerships have two parties: the limited partner and the general partner. Limited partners are, by definition, limited in their involvement in the business. Sometimes, these stakeholders are referred to as “silent partners” or just investors in a business.

General Partners in LPs

On the other hand, the general partner in an LP is involved in the active management of the business. General partners are the ones who make day-to-day decisions and do much of the legwork of running the business.

The downside of limited partnerships is that general partners have unlimited liability. Obviously, this is a concern.

Oftentimes, this concern is mitigated by having a corporation be the general partner. Typically, this corporation would not hold a lot of cash to further reduce the risk associated with operating as the general partner in a limited partnership.

LLCs vs. LLLPs

So, the question remains: since LLCs are readily available (wherein ALL members have limited liability), why would anyone ever use a limited partnership of any sort?

In my practice and with my clients, I like to use limited partnerships because limited partners are presumed to have a passive role in the income generated by that partnership. Yet the issue still remains of the unlimited liability of the general partner.

Benefits of LLLPs

In walks the triple-LP (LLLP). The triple-LP works to actually limit the liability of the general partner in addition to the limited partner.

You may be wondering, then, what the difference is between an LLC and an LLLP. In reality, there isn’t a huge difference in terms of asset protection and liability reduction. On the tax side of things, LLLPs retain the limited partner-general partner classification, which is one of the main differences (tax-wise) between LLCs and LLLPs.

Another thing to note about LLLPs is that they are only recognized in certain states. Thus, they are not nationally recognized.

Which One Is Right for Me?

As you may be guessing, in my opinion, the LLLP is an inferior product to the LLC because, with an LLC, all partners/members already have limited liability, all states accept them, and you still have the ability to differentiate between passive and active interests in that LLC.

So, there may be a place for an LLLP. To determine if this is the right entity for your purposes, it’s important to consider your circumstances and goals. One of my first questions when discussing an LLLP with a client is: Where are you from? If you’re an investor who invests in the US but lives in another country, your country’s regulations surrounding an LLLP may make it more favorable to your investing activities.

For most investors who reside in the US, however, I would recommend an LLC over an LLLP.

In general, LLLPs are specialized tools that are ideal for a specific set of circumstances. In my experience, the LLC is a far superior product, especially in terms of liability reduction. LLLPs are a tool, but aren’t a universally-useful tool.

The Takeaway

If you’re wondering whether an LLC or LLLP is the right entity for your business and investing, schedule a complimentary Strategy Session with one of our Senior Advisors today. On the call, you and a Senior Advisor will discuss your individual investing situation and goals, then build the best custom entity structure for you. You can schedule online or by calling 888.871.8535.

 

Watch as Carl explains the role and purpose of LLLPs, limited liability limited partnerships.

 

Resources mentioned in this video:

 

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