Limited Liability Partnerships

limited liability partnership (LLP)

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of partnerships and corporations, which you will learn about next.

In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. However, it is important to note that the exact characteristics of this form of business ownership varies depending on the laws of the state where you establish the business.

In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. Some states require one partner to be a “general partner” with unlimited liability, meaning he/she is ultimately responsible for the debts of the business and for any lawsuits such as personal injury or breach of contract. The partners have the right to manage the business directly.

Forming an LLP

Verify Eligibility Status. In the United States, each individual state has its own law governing the formation of LLPs. Although found in many business fields, the LLP is an especially popular form of organization among professionals such as lawyers, accountants, and architects. In California, New York, Oregon, and Nevada, LLPs can only be formed for such professional uses.

Choose a Business Name.  When selecting a name for the LLP, generally the name (1) must be different from an existing LLP in your state, and (2) most states require the inclusion of “Limited Liability Partnership,” “LLP,” or another related abbreviation at the end of your business name. 

Draft a Limited Liability Partnership Agreement. Although not required in every state, this agreement is strongly recommended. A limited liability partnership agreement should define each partner’s role and responsibilities. It should clearly define the partners’ assets and liability limitations. The agreement should also outline capital contributions, distribution of profits and losses, buyout agreements, expulsion or addition of partners, etc.

File a Certificate of Limited Liability Partnership. The drafting of an LLP agreement is optional; however, all LLPs must file a certificate of limited liability partnership (sometimes called a certificate of registration as a limited liability partnership). The certificate of limited liability partnership is more general than the limited liability partnership agreement, as it does not detail responsibilities, capital contributions, buyouts, etc. The certificate requires the listing of your business’s name and address, the names and contact information of the partners, and information on the registered agent of the LLP. 

Obtain Licenses and Permits. Once your business is registered, you must obtain business licenses and permits. Regulations vary by industry, state, and locality.

Announce Your Business. Some states, including Arizona and New York, require the extra step of publishing a statement in your local newspaper about your LLP formation.

LLP Taxes. The tax treatment for LLPs is similar to general partnerships, as discussed earlier. Profits and losses are passed through to the partners so the partners reflect them on their individual tax return.