What if you could obtain a tax-passable entity like an LLC or LLLP through a limited partnership, but with better creditor protection for the general partner? This is precisely the essence of an LLLP. In the past, some entrepreneurs created LLCs to eliminate risk for general partners. A limited liability partnership (LLLP) eliminates the need for this outdated strategy.

An LLLP is a type of limited partnership; however, unlike an LP, the liability of LLLP general partners for the debts or obligations of the LLLP is limited. An LLLP (limited liability partnership) is not as common as an LLC or LLP in the field of asset protection, but it is the most widely used tool for creditor protection in the US.

So, the question remains: since LLCs are readily available (where ALL members have limited liability), why would anyone ever use a limited partnership of any kind?

In our practice with clients, we use LLLPs because the limited partners are presumed to have a passive role in the income generated by that partnership.

The LLLP works to effectively limit the liability of the general partner as well as the limited partner.

You may be wondering, then, what the difference is between an LLC and an LLLP. In reality, there isn't a major difference in terms of asset protection and liability reduction. From a tax perspective, LLLPs retain the limited partner/general partner classification, which is one of the main (tax) differences between LLCs and LLLPs.

Another thing to note about LLLPs is that they are only recognized in certain states. Therefore, they are not recognized nationally. An LLLP can do everything a regular LP and an LLC can do (it is effectively a hybrid of the two). General partners have limited liability, and the partners are protected from liability if the company is sued. They are widely used in asset protection schemes with permanent residence in Panama.

The need to use a limited liability entity for the general partner such as an LLC is eliminated.