Other states afford the LLP the same "full shield" protection as that enjoyed in the LLC and corporation. Since your business entity does not have to be created in the same state in which you reside or do business, it's best to avoid creating an LLP in one of these states.
LLPs offer less protection from personal creditors.
In many states, the business interests of the owners of an LLP are afforded less protection from the claims of the owners' personal creditors, as compared to the LLC. Specifically, an LLC can be formed in a state that protects the owner's business interest against the claims of his personal creditors. This is not possible with the LLP, as no state affords this protection to LLP owners.
An LLP must have multiple "owners."
Because the LLP is a partnership, it must have two or more owners. While states formerly required two or more owners to form an LLC, today one owner is sufficient.
Professionals may have limited entity choices.
California and New York limit the use of LLPs to professionals, thus eliminating the LLP as a choice for other business owners. (In California, the term "professionals" is defined narrowly to include only lawyers and accountants, further restricting the availability of the LLP there).
Where professionals operate in the LLP form, many states impose mandatory insurance requirements on the owners. These requirements are not usually imposed on the owners of an LLC, although this may be an oversight that will be changed in the future.
When does an LLP make sense?
There is still one instance when an LLP makes sense: When the business owner is operating a very large, complex general partnership, conversion to an LLP rather than an LLC will be less expensive and less burdensome. Even here, however, it makes sense to form the LLP in a "full shield" state, even if that is not where the business's operations are conducted.
Converting a general partnership to an LLP
The conversion process from a general partnership to an LLP is unique in the law. The general partnership simply registers as an LLP. Technically, the old entity does not dissolve, and a new entity is not created. The old entity continues to exist, but is now subject to a new set of laws (i.e., those governing the LLP). The conversion does not trigger a taxable event because there is no change in the entity. Moreover, because of this registration process, none of the assets needs to be re-titled, making the conversion especially simple and inexpensive.
Limited liability limited partnerships can protect assets
As if business owners did not have enough "initials" to contend with (LLC, LLP, PLLC, LP, PC), a new business form—the LLLP—is beginning to emerge.
What is an LLLP? It is a limited liability limited partnership or, more specifically, a limited partnership (LP) that registers under state law so the general partner will have limited liability, similar to the limited partners. This is similar to the process of a general partnership registering to be recognized as a limited liability partnership (LLP), so that all of the owners have limited liability.
The LLLP form primarily is used to convert an existing limited partnership previously created under state law. However, it also will probably prove popular as an alternative to forming an LLC in those states that allow foreclosure of an owner's business interest, and forced liquidation of the business, by the owner's personal creditors.
