Definition of a Limited Liability Partnership (LLP)
An LLP has more than one partner, and is a hybrid between a partnership and an LLC. The difference from an LLC is that each partner in an LLP is not only shielded from the company's liability, but also from other partners' liability.
- Like normal partnerships, the LLP pays no income taxes. Instead, profits and deductions are passed through to individual partners. The partnership will report each partner's share of profit and loss on Schedule K-1 (Form 1065).
- As with LLCs, the partners are shielded from the LLP's losses (hence, the term "limited liability") unless the member(s) leverages personal assets for the LLP. Unlike LLCs and partnerships (whose members are liable for each other's actions), the partners in an LLP are also shielded from the liability of other partners in the LLP.
- LLPs are formed in each state according to the state-specific rules.
- Partners are owners, not W-2 employees. They are subject to self-employment taxes, and will report Federal income as an individual on Form 1040.
- LLPs may have W-2 employees. If so, the LLP is subject to normal Federal (Income, FICA, FUTA) withholding and State employment taxes (Income, SUI, SDI, etc.) on wages paid to employees, and will file Forms 940 (FUTA Tax return) and 941 (Quarterly Return for Income and FICA taxes) for amounts withheld.
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