What is a Limited Liability Partnership?

Garry Crystal

A limited liability partnership (LLP) protects each partner from personal liability for certain obligations of the partnership. It differs in one important way from general partnerships. Each partners is not liable to the other partner's debts or obligations as they would be in a general partnership.

In the U.S., each state has its own laws governing the formation of a limited liability partnership.
In the U.S., each state has its own laws governing the formation of a limited liability partnership.

In the United States, each state has its own laws governing the formation of a limited liability partnership. It is a popular form of partnership in some professions. Architects, lawyers and accounts are particularly fond of this form of partnership. In some states, an LLP can only be formed for these professions.

Partnerships that offer certain professional services may be required to form a limited liability partnership.
Partnerships that offer certain professional services may be required to form a limited liability partnership.

The liability of the partners involved also fluctuates from state to state. In section 306c of the Uniform Partnership Act, a guideline that many state laws are based upon, the partnership forms a limited liability similar to that of large corporations. The Act states that a partner's role in the partnership does not make him or her personally liable for any obligations.

A limited liability partnership (LLP) protects each partner from personal liability for certain obligations of the partnership.
A limited liability partnership (LLP) protects each partner from personal liability for certain obligations of the partnership.

A large number of states only extend liability protection against negligence claims. This means that a partner can be personally liable for other claims, such as contract claims. Profits from the business are distributed evenly among the partners. This is for tax purposes, as the partnership is not taxed separately. Separating profits also avoids double taxation, as sometimes happens with large corporations.

In states recognizing limited liability partnerships, a partnership can qualify by registering with state authorities and fulfilling certain requirements. Some states require proof that the partnership has enough assets to cover any claims and has obtained adequate liability insurance. In all states, the company must file a registration fee and include the phrase Registered Limited Liability Partnership or LLP in the business title.

Partnerships that offer certain professional services may be required to form a limited liability partnership and register as a professional partnership (PLLP). The PLLP is the same partnership structure, but is an association purely for professionals. Each state has its own guidelines as to what services qualify as professional, but typically, businesses such as engineers, dentists, accountants and lawyers are included.

In the U.S., each state has its own laws governing the formation of a limited liability partnership.
In the U.S., each state has its own laws governing the formation of a limited liability partnership.

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Discussion Comments

healthnwell

@lovelife--I would suggest at the very least going to your local small business administration. They should be able to help you with this if legal representation is not needed. I don't think they charge very much for their services and this way you know it will be drawn up correctly.

Good luck with your business, I know first hand how hard it can be!

lovelife

How easy is it to form a limited liability partnership? Is this something my partner and I can do ourselves or do we need to hire an attorney? We are a start-up business so saving money by drawing up the partnership agreement ourselves would be great!

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