Limited liability partnership
A
limited liability partnership (LLP) is a form of
business organization combining elements of
partnerships and
corporations. In an LLP, all partners have a form of
limited liability, similar to that of the shareholders of a corporation. However, the partners have the right to manage the business directly, and (in many areas) a different level of tax liability than in a corporation.
Limited liability partnerships are distinct from
limited partnerships, in that limited liability is granted to all partners, not to a subset of non-managing "limited partners." As a result the LLP is more suited for businesses where all investors wish to take an active role in management. However, some US states have combined the two forms to create
limited liability limited partnerships.
Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly
lawyers,
accountants and
architects. In some U.S. states (including
California and
New York), LLPs can only be formed for such professional uses.
United States
In the
United States, each individual
state has its own law governing their formation.
The liability of the members of an LLP varies from state to state. Section 306(c) of the
Uniform Partnership Act, a guideline upon which many state laws are based, grants LLPs a form of limited liability similar to that of a corporation. "An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner." However, a sizable minority of states only extend such protection against
negligence claims, meaning that partners in an LLP can be personally liable for contract and intentional tort claims brought against the LLP.
As in a partnership or
limited liability company (LLC), the profits of an LLP are distributed among the partners for tax purposes; the LLP is "tax transparent". This avoids the problem of "
double taxation" often found in
corporations. An LLC differs from an LLP in that the LLP has the organizational flexibility of a partnership. Furthermore, LLCs are more likely to be subject to a state's franchise taxes.
United Kingdom
In the
United Kingdom LLPs are governed by the
Limited Liability Partnerships Act 2000. An LLP has full limited liability status for all kinds of debts and liabilities of the LLP. In the UK LLPs have a
separate legal personality from the individual partners.
Japan
were introduced to
Japan in
2005 during a large-scale revamp of the country's laws governing business organizations. Japanese LLPs may be formed for any purpose (although the purpose must be clearly stated in the partnership agreement and cannot be general), have full limited liability and are treated as pass-through entities for tax purposes.
