Reprint permission from the December 1994/January 1995 issue of Crain's Small Business.

A lot of attention is being paid to the new limited liability company, or LLC, but the new business structure doesn't suit everyone.

In fact, partnerships may be better off becoming registered limited liability partnerships, a quick, easy and inexpensive alternative to LLCs.

LLCs, which in Illinois became legal in January, have rapidly gained acceptance because they offer flexibility and tax advantages.

An LLC allows a business owner to benefit from the "flow-through" tax treatment that partnerships enjoy, along with the protection from personal liability previously available only to corporate shareholders.

Thus, an LLC "member" can earn business income at lower individual tax rates, while shielding personal assets from the claims of business creditors.

As enticing as an LLC may appear, it is not for everyone.

For one thing, an LLC can be time-consuming and expensive to create.

Both articles of organization and an operating agreement should be carefully designed and drafted to set forth comprehensively the members' rights and obligations.

For another, there is no established body of law interpreting all the legal issues LLCs are likely to face, a fact that makes many conservative attorneys squeamish.

For businesses that operate in the partnership form, there is a quick, easy and inexpensive alternative, sanctioned by recent amendments to Illinois' Partnership Act.

Since August, Illinois partnerships have been permitted to register with the Illinois secretary of state as registered limited liability partnerships. (RLLP).

• Registration merely requires the filing of a bare-bones state form that discloses, initially and annually, the partnership's name and address, the number of partners and the nature of its business.
  
  
• Applications and renewal applications must be signed by a majority of the partners or by one or more of them who have been authorized to register the partnership as an RLLP.
  
  
• Each application must be accompanied by a filing fee of $100 for each partner, but not more than $5,000.

Once a partnership is registered, it is required to give "notice to the world" of its special status by including the words Registered Limited Liability Partnership or the abbreviation LLP in its name or by adding the designation LLP after its name.

Otherwise, the partnership will continue to operate as a traditional partnership, just as it did before- relying upon a predictable body of law governing its activities and retaining all its pre-existing tax characteristics.

What is new is that a partner in an RLLP simply won't be liable any longer for any partnership obligations arising from the acts or omissions of any of its other partners or its agents or employees.

Each partner will continue to be liable only for his or her own acts or omissions, those of anyone under his or her direct control and supervisors and - along with all of the partners - the partnership's ordinary commercial debts.

The scope of RLLP's protection is somewhat narrower than that available to LLCs, but the legal course is so much clearer that many attorneys are recommending the RLLP route for many new and existing partnerships.

Even beyond Illinois' borders, the law offers RLLPs solace.

Although the Illinois law cannot bind other states, the General Assembly has declared that Illinois RLLPs are authorized to do business outside Illinois, that they are intended to be recognized outside Illinois under the U.S. Constitution's "full faith and credit" clause and that the internal affairs of an Illinois RLLP - including a partner's insulation from personal liability - are to be construed under Illinois law.

As more and more businesses go beyond their own state's boundaries to tap new market opportunities, the registered limited liability partnership may be a "win-win" vehicle for prudent partnerships.

Marc J. Lane is an attorney and master registered financial planner. He is president of the Chicago based Law Offices of Marc J. Lane, which specializes in corporate and tax law and investment planning.