LLP Meaning: How a Limited Liability Partnership Works (and Who Uses One)
Warren Team
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Key terms
- LiabilityA financial obligation or debt owed to another party. Liabilities include mortgages, auto loans, credit card debt, and student loans.
- PartnershipA business structure in which two or more individuals share ownership, responsibilities, profits, and liabilities of a business. Partnerships come in several forms, including general partnerships where all partners share liability equally, and limited partnerships where some partners have limited liability and a more passive role. Partnership income passes through to the partners' individual tax returns, avoiding corporate-level taxation.
- Family Limited PartnershipA business entity formed among family members to hold and manage family assets such as investments, real estate, or a family business, with the goal of facilitating wealth transfer at reduced gift and estate tax costs. The senior generation typically serves as general partners with management control, while younger family members are limited partners who receive ownership interests. Transferring limited partnership interests at a discount can be an effective way to pass wealth to the next generation while minimizing estate and gift taxes.
- LLC (Limited Liability Company)A business structure that combines the liability protection of a corporation with the tax flexibility and operational simplicity of a partnership. LLC owners, called members, are generally not personally responsible for the company's debts and liabilities, meaning their personal assets are protected. LLCs can choose how they want to be taxed, either as a sole proprietorship, partnership, S-corp, or C-corp, making them one of the most versatile business structures available.
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