Chapter 5 – Limited Liability Partnerships

• Limited Liability Partnership
  • Partnership providing protection against personal liability for wrongful conduct of other partners
  • Also called Registered Limited Liability Partnership
• Liability
  
  • ¨Partial shield states:  states in which partners in an LLP retain liability for contractual obligations but have no personal liability for obligations arising in tort
  • ¨Full shield states:  states in which partners in an LLP are fully protected from personal liability, whether arising in tort or contract (also called Bulletproof States)
• Advantages of LLPs
  • The greatest advantage of an LLP is that in all states, partners in an LLP are protected against unlimited personal liability for negligent acts and misconduct of their partners or other representatives of the partnership business.
• When Does the Protection of an LLP Not Exist?
  • If a partner supervised or directed the partner who committed the act of liability at the time the act was committed
  • If the partner was directly involved in the act giving rise to liability
  • If the partner had knowledge or notice of the act of liability and failed to prevent or stop it (in many states)
• Disadvantages of LLPs
  • An LLP can be formed only by strict compliance with statute and, therefore, it may be expensive to form.
  • Partners in an LLP still have personal liability for other acts of their partners in the two partial shield states.
  • Insurance requirements
  • Restriction to professional firms
  • Lack of continuity
  • Filing fees per partner
  • Annual reports
  • Can encourage senior partners to avoid supervising junior partners
• Formation of an LLP
  
  • The following six elements are usually needed:
    • name of the limited liability partnership
    • the addresses of its principal office in the state and the agent for service of process
    • the number of partners
    • a brief statement of the business in which the partnership engages
    • an application statement
    • signature of an authorized partner
• Operation of llps
  
  • Operation of an LLP is nearly identical to that of a general partnership.
• Dissolution of LLPs
  • Dissolution of LLPs is similar to that of general partnerships.
  • The partnership agreement will likely discuss the events that will cause dissolution of the LLP.
• Key Features of Limited Liability Partnerships
  • Partners in LLPs have no liability in any state for wrongful acts of their co-partners.
  • In almost all states, called full shield states, LLP partners have no liability either for wrongful acts of their co-partners or for contractual obligations of the partnership.
  • Partners in LLPs retain liability for their own wrongful acts and those they direct or supervise.  The LLP itself is also liable for such acts.
• Key Features of Limited Liability Partnerships
  • LLPs are formed by filing an application with the state of formation.
  • Identical to general partnerships, the LLP agreement may be oral or written; in the absence of an agreement, profits, losses, management, and control are shared equally regardless of capital contribution.
• Key Features of Limited Liability Partnerships
  • LLPs have the pass-through taxation of general partnerships.
  • LLPs continue the modern trend of business structures that allow their members to manage the enterprise and yet be protected from personal liability.