The limited liability partnership (LLP) is a partnership with limited liability status. Thus, unlike general partnerships, individual partners are usually "shielded" from individual liability for the misconduct of other partners.
Typically, LLPs are reserved for professionals, such as lawyers and accountants, in order that the partners may avoid liability for negligence or misconduct of other partners. Since an LLP is a general partnership with limited liability status, it runs like a general partnership and has the same flexibility of control with income, losses, and gains passing to the partners according to the partnership agreement or interests of the partners.
The liability of a partner in a LLP is limited only in regard to the negligence or misconduct of other partners. However, a partner is liable for all other debts and obligations of the partnership that do not stem from negligence or misconduct.
A limited liability company (LLC) and a LLP are essentially the same thing. The primary difference being a LLC has the same liability shield as a corporation, and thus members of an LLC may not be personally liable for the debts and obligations of the company.
Like most limited liability organizations, the LLP was created by statute. Thus, each state’s statute will specify who can form a LLP and the process for becoming a LLP. Generally, most require a filing for a certificate with the Secretary of State.
The selection of the right business entity is vital to the success and organization of a organization. Hiring a business attorney familiar with LLPs will help you to analyze the pros and cons of choosing a particular business entity. If you decide an LLP is right for you, a lawyer can help you draft your state’s required filing documents.