What is an LLLP?
Everything evolves, even legal concepts and tools. And the Limited Liability Limited Partnership (LLLP) is an example of one such evolution. So what is this new animal? Well if you already understand what a Limited Partnership (LP) and a Limited Liability Company (LLC) are, then understanding the LLLP is a piece of cake.
Like the fabled Jackelope, it is a hybrid of the two. In the LP, the General Partner has unlimited liability for the actions of the partnership, while the Limited Partners have limited liability. To get around that many planners use an LLC to serve as the GP, thus eliminating that risk and creating limited liability for all the partners.
With the new LLLP, the GP already has limited liability, eliminating the need for an additional LLC. Basically you can think of an LLLP as a traditional LP, with the benefits of an LLC as General Partner built in. That’s basically it, nothing more fancy than that.
Creation of an LLLP
In total 22 States currently allow, in some manner, for the creation of an LLLP. Several of these states don’t actually have an LLLP statute at all and creation requires the draftor to reference both the LP and the LLC statutes. In other states there is actually a Statute specifically addressing the creation of the LLLP. And in California, the LLLP is not recognized at all, but the state will recognize one created in another jurisdiction, as long as it is registered to do business in California.
LLLP and Asset Protection
So what does all this mean for Asset Protection? Is it time for everyone who has an LP to run to the new LLLP? Not really. If your plan was set up with an LP and you judiciously avoided exposing the Partnership (and hence the GP’s) to any risky assets or businesses, then converting to an LLLP is unnecessary since limiting the risk of the GP has already been accomplished. If you have an LP, and already use an LLC as the GP, then it is also unnecessary, since again the goal of limiting the liability of the GP has already been achieved.
If you are starting from scratch, and can utilize one of the states which allow for it, then using an LLLP may be the right choice for you. Nevertheless, there may still be reasons to use an LLC as the General Partner if there is any risk of infection from within. This is especially true if you want to manage more than one LP or desire additional flexibility about the transfer of management without a need to fiddle with the underlying LP. his more traditional structure also allows you to set up a completely different set of management rules and separate operating agreement without complex drafting inside the LLLP. This may be particularly important if your limited partners are different from the general partners.
The key with any planning is not to let the tail wag the dog. The right choice should be based on your particular “real world” situation and not on a theoretical “text book” analysis. I often get “which one is better” calls which remind me of grade school arguments about who would win Superman or Spiderman.
Using an LLLP may be appropriate for your situation or it may not, but figuring out when is a job best done with the help of qualified counsel. If you are researching asset protection the best possible advise I can give you is to pick up the phone and talk to someone who is experienced in this area of law. Research is great, but there is simply no substitute for people. That is why we are here isn’t it?