A limited liability partnership (or “LLP”) entity election is a partnership with limited liability status. This means that, unlike general partnerships, the assets of an individual partner are generally protected from debts arising from the misconduct or negligence of other partners.
The LLP is generally a preferred business model for professionals such as lawyers, accountants, and engineers. California regulates partnerships, including the LLP, under the Uniform Partnership Act.
To receive the LLP protections afforded under California law, an entity seeking to become a LLP must file an “Application to Register a Limited Liability Partnership (LLP)”. The application requests the following information:
- the name the LLP wishes to conduct business as,
- the state (or possibly country, if foreign) in which the LLP was formed,
- the LLP’s address,
- a method in which service of process can be performed on the LLP, and
- the type of business the LLP will conduct (e.g., architecture, engineering, law, accounting, etc.).
The application must be signed by an authorized person and submitted to California for review.
Other than the initial filing paperwork and annual filings, a LLP is only required to submit paperwork to California in the event of a:
- change to process of service,
- name change,
- filing status change (in other words, the election of a new business entity), and
- dissolution (the ending of the LLP).
You may want an experienced business lawyer to review your filings to ensure they are properly submitted. Failure to do so could lead to the LLP losing its status.
The primary reason for selecting the LLP model is that partners of the LLP are not liable for the negligence of other LLP partners. However, that a partner in a LLP is still liable for all other debts and obligations of the LLP. This is why LLPs are generally best suited for professionals such as lawyers and accountants who rarely have significant overhead or debts to third parties.
The biggest disadvantage of the LLP model is that partners to the LLP remain liable for the debts and obligations of the LLP. Partners to a LLP must remain diligent to ensure that the LLP does not become indebted or otherwise obligated beyond the abilities of the LLP itself to pay; otherwise the partners will be personally liable for those debts.
If you are trying to form a LLP, then contact a local California corporate lawyer today if you have questions about what protections the LLP model is given.