Partnerships & LLCs

This article covers General Partnership, LLPs, LPs & LLCs. A partnership is a business structure whereby two or more members (persons or companies or a mixture of both) own and run a business with the aim of creating profit. It has its origins in Roman Law and in the Lex Mercatoria (the ancient Law of Merchants). The main difference between a General Partnership, a Limited Partnership (LP) and a Limited Liability Partnership (LLP) is that in a General Partnership, the partners do not enjoy limited liability, in a Limited Partnership some members have the option to relinquish involvement in the management of the business in exchange for limited liability while as in an LLP the partners have limited liability that is, the members are not personally responsible for debts or actions of the company. In an LLP the partners have the right to participate in the day-to-day management of the business therefore rendering them (LLPs) as a more attractive vehicle to use. Limited liability is however not absolute. Exceptions to limited liability protection also apply in the case of companies and include treating the LLC as an extension of personal affairs instead of a different, separate legal entity, personally and directly injuring someone, personal guarantees to a bank loan or a business debt, if taxes withheld from employees’ wages are not deposited, intentional fraud or reckless actions that damage the business structure or someone else.

General Partnerships
A general partnership is the basic form of partnership. It is a business structure whereby the members own and run the business, share profits and losses equally and are personally liable, jointly and severally, for any debts or obligations incurred by the partnership. Unlike companies, partnerships cease to exist upon the death, retirement or insolvency of a partner which highlights the importance of preparing a “Partnership Agreement” establishing relevant aspects of the business as well as important eventualities such as the retirement or death of a member. Among the clauses that such an agreement should have are: duration of the business, profit sharing, assets and capital contribution, duties, retirement/termination clause (for example a buy-sell provision), dispute resolution clause. These issues should be discussed preferably prior to the setting up of the partnership and should be part of the agreement. The “Partnership Agreement” is not a requirement to set up a partnership but it is highly recommended to have one in order to avoid legal issues and complications in the future. The minimum amount of registered members is generally two. These can be companies or individuals or a mixture of both. Given their lack of limited liability a general partnership is not a popular vehicle and is only generally used where the law prohibits the operation of an LP or LLP. Before the widespread use of the limited company, partnerships were the only means for individuals to cooperate on private ventures. The drawback of the partnership was that the members were jointly and severally liable for any losses of the partnership or the other partners and since partnerships did not have a separate legal identity to that of their members losses were potentially unlimited. The law has since evolved and many countries now allow for the registration of LPs and LLPs as legal entities in their own right with limited liability.

Limited Partnerships (LPs)
In the case of limited partnerships, some members enjoy limited liability but at the cost of relinquishing control over the day-to-day running of the business, that is, they do not have management authority. Their liability is therefore limited to their investment in the partnership. Only one partner is required to be a general partner who would be jointly and severally liable for the debts of the partnership. In this sense the LP can be compared with a limited company where the limited partners take on the role of shareholders and the general partners the role of directors. Since LPs do not afford the same protection as LLPs they are generally considered less attractive and would be used by preference only in cases where the use of an LLP is prohibited by law for some reason.

Limited Liability Partnerships (LLPs)
An LLP is a partnership in which the partners share the profits, have limited liability (as opposed to a general partnership where the members are personally liable), are not liable for corporate tax and have the right to manage the business directly being involved in the day-to-day running of the business. This structure is a very flexible one, easy to setup and manage. It allows the partners to register the business in a high tax country without having to pay corporate tax there. The limited liability feature is one of the most attractive aspects of this business structure. This means for instance that one partner is not responsible or liable for other partners’ negligence or misconduct.

LLPs generally do not pay corporation tax or capital gains tax and are taxable as a partnership with gains arising on the partners directly. In this way a partnership may be a route to achieving a presence in a high-tax country without paying corporate tax there.

LLPs enjoy a high degree of organisational flexibility, provide its members with limited liability and the opportunity to be involved in the daily running of the business as well as allowing the business to be set up in a high tax country whilst not having to pay tax there. Since partnerships may end in the event of death they may be beneficial in the inheritance tax or estate planning.

Limited Liability Company (LLC)
This page is concerned with US-style LLCs. For corporations (elsewhere termed Private Limited Companies). 

Limited Liability Companies (LLCs) are a US-style entity having a legal personality distinct from its member (or members) in the same way as limited companies however they have fewer formalities to establish and operate and are generally see-through for tax purposes. They also afford separation of assets for trading purposes but are not taxed, instead their income is taxed on the Members directly. LLCs are often used to present a shop-front presence in the US.

Limited Liability
LLCs, like other types of company, have the ability to ring-fence liability and thereby protect the assets of their owners and managers from the liability of their own activity. This characteristic is referred to as “limited liability” and can also be used to, for example, separate the assets between a high business risk activity and a lower risk area. This is the main distinction between an incorporated entity such as a company and a sole trader.

Separate Legal Personality
LLCs have their own identity, they can own property in their own name, open bank accounts, conduct business, sue and be sued and provided they are operated legally the liability of the company will remain limited to its own assets so any assets held by the owners and managers will not be forfeit in the event of the company being sued.

Despite otherwise having their own identity LLCs are see-through for tax purposes, this means that they are tax neutral. In order to gain any tax advantage from their usage it will be necessary to construct them from other entities registered in low or no tax countries. For companies which have their own identity for tax purposes the most appropriate vehicle may be a Limited Company (termed a Corporation in the US).

Ownership and Management
LLCs are owned by their members and can be managed by them or by a board of managers appointed by them. Their operation varies depending on the  country (or in the US by the state) in which they are registered and generally their management is less formal than the governance of a Limited Company (which in the US is termed a Corporation).

Factors Concerning Choice of Country
LLCs are registerable in quite a limited number of countries (they are principally a US entity) and are frequently constituted from members registered in low tax or no tax countries.Their main purpose is to create a shop-front presence in a high-tax country which is not subject to tax and accordingly the choice of country will depend on where the business intends to operate. LLCs may also be useful to facilitate cross border trade between countries with different tax rates. Where the registration of LLCs is not possible a Limited Liability Partnership can frequently be used to provide identical benefits.

Comparison of Partnership Vehicles



General Partnership

Limited Partnership

Limited Liability Partnership (LLP)/Limited Liability Company (LLC)


Shareholders have limited liability. Directors liability limited except in cases of fraud or wrongful trading.

All partners have personal liability for debts and obligations incurred by the business

Some partners can have limited liability if they relinquish their right to be involved in the management of the business.

Limited liability protection, same as company.


Income may be taxed at corporate level then again when distributed at shareholder level.

See through for tax purposes. Presence in a high tax jurisdiction and no corporate tax.

See through for tax purposes. Presence in a high tax jurisdiction and no corporate tax.

See through for tax purposes. Presence in a high tax jurisdiction and no corporate tax.


Directors operate and bind the company.

Joint authority: A partner’s actions are binding on the other member (s).

General partners operate and bind the partnership.

Subject to terms of partnership agreement anyone may bind LLP/LLC.


No limited existence. It just ceases to exist when wound up

Limited existence: upon death, retirement or insolvency of a partner

Limited existence: upon death, retirement or insolvency of a partner

Limited existence: upon death, retirement or insolvency of a partner


Higher degree of privacy (nominee directors)

Less privacy

Less privacy

Less privacy


Memorandum and Articles of Association

Not legally required to have a “Partnership agreement” but highly recommended.

Deed of Partnership

Deed of Partnership

Operational Considerations

Lower degree of flexibility making it more difficult to run

Higher degree of flexibility. Easier to run.: No need to  issue stock certificates, hold meetings, keep minutes, elect officers.

Higher degree of flexibility. Easier to run.: No need to  issue stock certificates, hold meetings, keep minutes, elect officers.

Higher degree of flexibility. Easier to run.: No need to  issue stock certificates, hold meetings, keep minutes, elect officers.


Issues shares

Does not issue shares

Does not issue shares

Does not issue shares

The level of reporting varies from country to country and  depends on the type of partnership formed. In some cases the reporting may be almost none however in most cases of partnerships enjoying limited liability there will be a requirement for the preparation of accounts or at the very least the keeping of accounting records and the submission of an annual return to the registrar of partnerships.

Limited Companies (Ltd) (Corporation)
LLCs are see-through for tax purposes but still have legal identity separate from their members. Whereas Limited Companies (termed Corporations in the US) have a fully separate legal identity and are capable of being taxed. This increased legal identity often comes at the cost of higher formality and reporting requirements (depending on the country where incorporated).