A limited liability partnership – called a “LLP” – is a type of business entity that allows partners to the LLP to be shielded from debts and obligations created by the negligent or reckless conduct of other partners. The LLP is usually chosen by professional organizations such as accounting and law firms. Wyoming has passed the Uniform Partnership Act to govern LLPs.
As with most states, Wyoming only requires that an LLP have two or more partners and that the LLP file all appropriate paperwork with the state. There are initial and ongoing filing requirements that can be time consuming and complicated. It is often best practice to have a LLP lawyer review all paperwork before filing to ensure they meet the requirements of Wyoming.
Most LLPs will require an operating agreement. These agreements layout the rights and obligations of partners to the LLP. Wyoming has limited what these agreements can do. Under Wyoming law an operating agreement cannot:
- unreasonably restrict a partner’s right of access to the LLP’s books and records;
- eliminate the duty of loyalty owed;
- unreasonably reduce the duty of care owed;
- eliminate the obligation of good faith and fair dealing;
- vary the power to withdraw or expel partner; or
- restrict rights of third parties.
These are considerable restrictions and you should have a business lawyer draft or review your operating agreement to ensure compliance.
As discussed above, the most important benefit of the LLP model is that it protects partners to the LLP from personal liability for the negligent or reckless conduct of other partners. For example, if an accountant negligently fails to file paperwork on behalf of a client then they will be liable for the negligent act but other partners to the firm may not be.
Partners to a LLP owe the LLP and other partners certain duties and obligations. As discussed above, an operating agreement cannot unduly limit these duties and obligations. In practice, the management of partner relations is often the biggest disadvantage to a LLP.
It’s important to add provisions in the operating agreement for any possible circumstances, such as a death of a partner or something else that is unforeseen. If there is no provision in the operating agreement, it can result in the state law controlling the outcome, which can be dissolving the LLP.
If you are trying to form a LLP in Wyoming, then contact a local Wyoming business lawyer today if you have any concerns about the formation or operation of your LLP.