| A limited liability
partnership (LLP) has elements of partnerships
and corporations.
In an LLP, all partners have a form of limited
liability, similar to that of the shareholders of a
corporation. However, the partners have the right to manage the
business directly, and (in many areas) a different level of tax
liability than in a corporation.
Limited liability partnerships are
distinct from limited
partnerships, in that limited liability is granted to all
partners, not to a subset of non-managing "limited
partners." As a result the LLP is more suited for
businesses where all investors wish to take an active role in
management.
In the United
States, each individual state
has its own law governing their formation. Limited liability
partnerships emerged in the early 1990s:
while only two states allowed LLPs in 1992, over forty had
adopted LLP statutes by the time LLPs were added to the Uniform
Partnership Act in 1996.
Although found in
many business fields, the LLP is an especially popular form of
organization among professionals, particularly lawyers, accountants
and architects. In some U.S. states (including California and New
York), LLPs can only be formed for such professional uses.
The liability of the partners varies from
state to state. Section 306(c) of the UPA (a standard statute
adopted by many states) grants LLPs a form of limited liability
similar to that of a corporation:
- An obligation of a partnership incurred
while the partnership is a limited liability partnership,
whether arising in contract, tort, or otherwise, is solely
the obligation of the partnership. A partner is not
personally liable, directly or indirectly, by way of
contribution or otherwise, for such an obligation solely by
reason of being or so acting as a partner.
However, a sizable minority of states only
extend such protection against negligence claims, meaning that
partners in an LLP can be personally liable for contract and
intentional tort claims brought against the LLP.
As in a partnership or limited
liability company (LLC), the profits of an LLP are
distributed among the partners for tax purposes, avoiding the
problem of "double
taxation" often found in corporations.
Limited Liability Partnership (LLP)
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