One of the major drawbacks of limited partnerships, however, is that they require a general partner that has unlimited liability for the debts of the partnership. In the past, to get around this, savvy investors have created a special limited liability company and named it as the general partner. They then elected themselves as managers of the limited liability company. This allowed them to utilize the benefits of a limited partnership and avoid being on the hook personally for company debts. If the limited partnership failed, then the general partner would be the limited liability company, which would have very few assets and could be put into bankruptcy. The actual investors behind it would get to walk away to start a new project.
This resulted in added expense, paperwork, and government filings. To help get around the problem, roughly half of the states in the country allow for the creation of something called a limited liability limited partnership (or LLLP for short, sometimes called an LLP). Unlike a traditional limited partnership (or LP), the general partner of a limited liability limited partnership are not personally responsible for the debts incurred by the partnership unless they agree to be through debt covenants or other contracts. This avoids the hassle of setting up multiple entities as a work-around to the law and lets states avoid unnecessary paperwork.
Limited Liability Limited Partnerships Are Used Most Often in Real EstateBy far, the most popular use of limited liability limited partnerships are in the real estate industry where a group of investors get together and build a project such as a hotel, apartment community, or commercial building. The investors are often more satisfied knowing they are not liable for the partnership’s debt and can only lose what they invested, whereas the general partner that organized the project gets the same peace of mind.
Regular operating companies not involved in real estate can use the limited liability limited partnership structure. CNN, one of the world’s largest news sources, is actually Cable News Network LP, LLLP and is owned by Turner Broadcasting. There are car dealerships, publishing firms, scientific laboratories, and asset management companies structured as LLLP’s.
In fact, a limited liability limited partnership can do virtually anything a regular limited partnership, limited liability company, stock corporation, or sole proprietor can do. This includes buying and selling stocks, bonds, mutual funds, U.S. savings bonds, and more.