What to Know about a Limited Liability Partnership

By Brett Melson Monday, April 8, 2019

A limited liability partnership is a general partnership which has elected to be treated as a limited liability partnership ("LLP") under Delaware law. Unlike a limited partnership, an LLP is not set forth in a separate portion of the Delaware code; instead, the laws governing the features of an LLP are the same as those governing general partnerships.

what is a limited liability partnership

Thus LLP status is an election made by a general partnership via the Partnership Agreement, rather than a separate and distinct class of business entity.

The key difference between a partnership electing to be treated as a limited liability partnership and a general partnership is the treatment of individual partners for purposes of the liabilities of the partnership resulting from the conduct of other partners.

In an LLP, the individual partners are not liable for the debts and liabilities of the partnership as a whole; rather, they are only responsible for liabilities arising from their own conduct acting on behalf of the partnership. In contrast, a partner in a general partnership is fully liable for the debts and obligations of the partnership.

In terms of management, each partner of a limited liability partnership may participate in management and act on behalf of the LLP, which may structure its managerial responsibilities in any manner it chooses.

This differs from the requirements of a limited partnership (an "LP"), the other type of partnership under Delaware law, which offers certain partners (the limited partners) protection from personal liability. In a limited partnership, limited liability is only provided to those partners who do not participate in the management or operations of the limited partnership.

An LLP is in many ways similar to a limited liability company (an "LLC") in that it provides its partners (called members in an LLC) with liability protection from the debt and liabilities of the partnership.  The members of an LLC may fully participate in the management of the LLC without losing liability protection (like the partners of an LLP but in contrast to the limited partners of the LP form).

The LLC is now the preferred business form because of its near-complete flexibility of terms and governing provisions; as a result, LLP elections are increasingly rare. Although similar in many ways to an LLP, the LLC is seen as a more adaptable business form.

LLP status is most commonly used in professional organizations, such as law firms, doctors' offices and accounting firms. Some professions are not legally permitted to organize as LLCs, and so the LLP form provides a close alternative.

The goal of the LLP form is to permit one partner to avoid liability for the mistakes of another while being held accountable for his/her own misconduct directly. This serves a public policy function, ensuring that members of professional organizations that are frequent targets of malpractice lawsuits can conduct business without fear that another partners' mistakes will bankrupt the non-offending partner.

On the other hand, states have an interest in ensuring that harmed parties have a recourse against a professional committing malpractice. In many cases, LLPs will take out insurance policies to ensure that a malpractice suit against a partner does not bring down the LLP as a whole.

Throughout my years of helping clients form Delaware entities, the Limited Liability Partnership has come up in conversations countless times; however, the structure is rarely utilized and most business owners tend to form an LLC instead.

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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There are 2 comments left for What to Know about a Limited Liability Partnership

leticia darrow said: Sunday, January 19, 2020

my husband is a licensed A&P mechanic who does maintenance on helicopters. He just opened his own business but has been turned down for any kind of liability insurance because the company doesnt have enough gross income. so in the meantime we are working with no insurance in a sue happy industry! What are other ways to protect ourselves from being sued and losing our personal assets, ie home, etc? Ive read that even if our business is an LLC, if a pilot crashes or other damage, that often everyone involved including the a&p mechanics are sued for negligence, even if its due to pilot error...and that they go after the mechanic personally not just the business, so having an LLC doesnt help. Do you know if this is true, and what strategies do you suggest?

HBS Staff replied: Tuesday, January 21, 2020

This sounds like a frustrating situation. Unfortunately, we cannot provide any legal advice, but would strongly recommend consulting a lawyer to advise you on liability matters.

Kristy Glenn said: Monday, May 7, 2018

Very useful articles.I am very glad to see such information about Limited Liability Partnership, LLP.

HBS Staff replied: Monday, May 7, 2018

Thanks for reading our blog.

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