The running of a family business as a Limited Liability Partnership (LLP) has its advantages and disadvantages; the selection of the business form depends on the owner’s expectations and role.
Advantages
The simplicity of its formation thus makes it relatively inexpensive to form and operate. Subsequently, its formation requires at least two members; there is no limit to the number of members it can accommodate; this makes it convenient for the contribution of many family members, to the business, as passive owners (Macfarlanes, 2012).
In a LLP, the manager and members remain liable for only their amount of investment; there are no personal liabilities. The business is thus a separate legal entity from its members; this excludes the members from obligations or debts of the LLP. It is an advantage because it protects the members’ personal assets from the business’ financial consequences; this encourages the involvement of more owners. There is no double taxation; the taxation on profits only occurs on the LLP’s members according to their profit share entitlements.
Disadvantages
An LLP requires a minimum of two designated members with responsibilities over the other passive members; this limits my interest in being the sole manager. Under no circumstances should the number of members fall below 2 for more than 6 months; if this occurs, the member becomes jointly liable with the LLP. Subsequently, some businesses may be hesitant in collaborating with the LLP due to the lack of personal liability, by partners, for the business’ actions. The LLP’s lenders may also force the owner to guarantee loans to the business personally; this eliminates the advantage of limited liability (Macfarlanes, 2012).
Despite its disadvantages, the running of a business as a LLP accommodates active management while other owners assume passive roles; its efficiency guarantees moderate income in perpetuity for all owners.
Reference
Macfarlanes (2012). Structuring a Business as a Limited Liability Partnership. Corporate Law, Retrieved December 30, 2013 from http://www.macfarlanes.com/media/815841/structuring_a_business_as_limited_liability_ partnership_oct12_updated_jan.pdf
