Chapter Five Limited Liability Partnerships

Limited Liability Partnership Partnership providing protection against liability for wrongful conduct of other partners; formed by compliance with statutes.

Liability  Partial shield states: states in which partners in an LLP retain liability for contractual obligations but have no personal liability for obligations arising in tort  Full shield states: states in which partners in an LLP are fully protected from personal liability, whether arising in tort or contract

Advantages of LLPs The greatest advantage of an LLP is that in all states, partners in an LLP are protected against unlimited personal liability for negligent acts and misconduct of their partners or other representatives of the partnership business.

When Does the Protection of an LLP Not Exist?  If a partner supervised or directed the partner who committed the act of liability at the time the act was committed  If the partner was directly involved in the act giving rise to liability  If the partner had knowledge or notice of the act of liability and failed to prevent or stop it (in many states)

Formation of an LLP The following six elements are usually needed:  name of the limited liability partnership  the addresses of its principal office in the state and the agent for service of process  the number of partners  a brief statement of the business in which the partnership engages  an application statement  signature of an authorized partner

Key Features of Limited Liability Partnerships Continued on next slide  Partners in LLPs have no personal liability in any state for wrongful acts of their co-partners.  In almost all states, called full-shield states, LLP partners have no liability either for wrongful acts of their co-partners or for contractual obligations of the partnership.  Partners in LLPs retain liability for their own wrongful acts and those they direct or supervise.

Key Features of Limited Liability Partnerships Continued on next slide  LLPs are formed by filing an application with the state of formation.  Identical to general partnerships, the LLP agreement may be oral or written; in the absence of an agreement, profits, losses, management, and control are shared equally regardless of capital contribution.  LLPs have the pass-through taxation of general partnerships.

Key Features of Limited Liability Partnerships  LLPs continue the modern trend of business structures that allow their members to manage the enterprise and yet be shielded from personal liability.