Updated
GL-L-06
Glossary · Structures and trusts
LP and LLP - partnerships with different partner liability
01 / In 30 seconds
The short answer
- What it is
- Forms of partnership: LP — limited, LLP — limited liability
- LP
- There is a general partner with full liability and limited partners who are investors
- LLP
- All partners’ liability is limited; the form is popular with professional firms
- Taxes
- Often transparent: the partners are taxed, not the partnership itself
- An important nuance
- Tax transparency in one country does not guarantee the same treatment in another
02 / In plain words
What LP / LLP means
An LP (limited partnership) and an LLP (limited liability partnership) are two forms of partnership. In an LP there is a general partner who manages the business and bears full liability, and limited partners who contribute money and risk only up to their contribution. This structure is typical of investment funds.
In an LLP all partners have limited liability, while the partnership logic of management is retained. The form is popular with professional firms — legal, consulting, audit — where the partners run the business together but do not want to be liable with their personal property for their colleagues’ mistakes.
The tax feature of both forms is transparency: in many jurisdictions the partnership itself pays no tax, and income is allocated to and taxed on the partners. Hence the main practical risk: the country of your tax residence may look at the same structure differently. That is why the treatment is always checked on both sides, not only in the country of registration.
A case from practice
A partner in a foreign structure believed tax arose only where it was registered. After a change of residence, their country of residence looked at the distributed income under its own rules. The matter was resolved, but it had to be dealt with after the fact.
Where partnerships are found
- Investment funds
- Partners’ joint projects
- Professional firms
- Venture investment structures
- Holding assets by a group of people
- International consortia
03 / What it covers
How the forms differ
LP
- The general partner manages
- Full liability rests with them
- Limited partners — a contribution
LLP
- Liability limited for everyone
- Partnership-style management
- Popular with professional firms
Taxes
- Often transparent
- The partners are taxed
- The treatment depends on the country
Risks
- Treated differently in another country
- Reporting requirements
- Disclosure of partners
04 / How it works
How to approach the choice
Define the partners’ roles
Who manages and who only invests.
Check the tax treatment in both countries
How the partnership is taxed in each country.
Fix the partnership agreement
Roles, stakes, profit, entry and exit.
Register the structure
Registration in the chosen jurisdiction.
Keep up the reporting
Partnership reports and partners' tax returns.
05 / Key facts
What you need to know
01LP
The general partner is fully liable
They run the business. Limited partners invest and risk only their contribution. Typical for funds.
02LLP
Liability is limited for all
Every partner is protected from the partnership's debts. Popular with lawyers, consultants, auditors.
03Taxes
Often transparent
Profit is taxed at partner level, not partnership level. Another country may treat the structure as a company.
04Agreement
The key document
Roles, stakes, profit split, entry and exit of partners are set in the partnership agreement.
Common mistakes
Assuming tax transparency is universal
Check the regime both in the partnership's country and in your country of residence.
Not providing for a partner's exit
Set out exit, share valuation and settlement in the agreement in advance.
Choosing a form without understanding liability
In an LP the general partner is liable with all assets: often a separate company takes that role.
06 / Expert advice
How to prepare in advance
Before a partnership is formed, the roles are fixed: who manages, who invests, how profit is distributed and what happens when a partner leaves. The tax treatment is checked on both sides — in the country of registration and in each partner’s country of residence. A difference in how countries characterise the structure is the most common problem with such arrangements.
What we do for you. If your income comes through a partnership, it is a separate matter to check when relocating: countries view such structures differently. We raise this question in advance so that no unexpected obligations appear after the change of residence.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
An LP has a general partner with full liability and limited partners who are investors. In an LLP all partners have limited liability.
The partnership itself pays no tax: income is allocated to the partners and taxed on them. But the treatment depends on the particular jurisdiction.
Because another country may characterise the same structure differently and tax it under its own rules. The treatment is checked on both sides.
The general partner — in full. Limited partners risk only up to their contribution, provided they do not take part in management.
The partners run the business together but are not liable with their personal property for each other’s mistakes. It is a convenient structure for such firms.
Roles and powers, profit distribution, decision-making, the entry and exit of partners, dispute resolution.
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