Limited Liability Partnerships- Introduction

An Intoduction to Limited Liability Partnerships Limited Liability Partnerships- Introduction

A limited liability partnership (LLP) is a general partnership wherein the liablity of the partners for the debts of the partnership is limited. A limited liability partnerpship is not the same thing as a limited partnership (LP) which is a partnership having one or more general partners and one or more limited partners. Typically, in a limited partnership, there is one general partner who manages the acitivities of the business and a number of non-participating limited partners who are little more than investors. In limited liability partnerships however, the partners are usually all actively involved in the business, and in this respect a LLP is analogous to a limited liability company.

In order to become an LLP, it is necessary to file a limited liability partnership regsitraton statement in the partnerships home state. Unlike a general partnerhip, the parites must intend to form the relation and file with secretary of state before an LLP can be found to exist.

LLP acts have been adopted in every state, and they are largely used by professional persons who would like to limit the liability they may face as a result of the misconduct of other partners. Partners in large legal, accounting or medical firms may not have even met each other, yet partnerhip law would find them jointly and severally liable for the acts of any one of them, and the popularity of LLPs is largely a reaction to that fact.

The degree to which LLPs protect against liability for the actions of other partners varies by state, and in some states the law protects only against the torts while in others it protects against commercial obligations as well. In all states, a partner is also personally liable for the the torts of those under the partner's direct control. Also, any liability that arose before, say, a general partnership was converted to a LLP is also not limited by the existence of the new LLP.

LLPs are treated as partnerships for state and federal income tax purposes, but in certain circumstances limited liability partnerships may elect to be taxed as corporations by electing to be so taxed on form 8832.