LLP stands for Limited Liability Partnership. This is a partnership whereby some or all partners have limited liability, depending on the jurisdiction. In an LLP one partner is not liable or responsible for another partner’s negligence or misconduct. This is what distinguishes it from a limited partnership.
Some partners in an LLP have a form of limited liability comparable to the ones shareholders of a corporation have. In some countries, a LLP must have what is known as a general partner with unlimited liability. Unlike corporate shareholders, the partners have the right to maintain the business directly. Contrastingly, corporate shareholders have to elect a board of directors as is legally required by each jurisdiction. The board is mandated to hire corporate officers who have entrusted in them the legal responsibility to manage the corporation in the corporation’s best interest. Limited liability partnerships contain different levels of tax liability than a corporation. Its partnerships should not be confused with limited partnerships in some countries. There is also considerable confusion between LLPs as constituted in the United States as well as that introduced in the United Kingdom in 2001 and implemented else where.
Each state in the United States has its own laws governing the formation of a limited liability partnership. It is a popular form of partnership in some professions such as Architects, lawyers and Accountants. In some states, limited liability partnerships can only be formed for these professions. The liability of partners involved also fluctuates from state to state and only a few states extend liability protection against negligence claims. A partner can be personally liable for other claims such as contract claims. Profits from the limited liability partnership are disseminated evenly among the partners. This is for tax purposes, as the partnership is not taxed separately. Separating profits also avoids double taxation, as sometimes happens with large corporations.
In states that recognize limited liability partnerships, a partnership can qualify by registering with state authorities and fulfilling certain requirements. Some states require proof that the partnership has enough assets to cover any claims and has obtained adequate liability insurance. In all states, the limited liability partnerships must file a registration fee and the business title must include the phrase Registered Limited Liability Partnership or LLP.
Partnerships that offer definite professional services may be required to form a limited liability partnership and register as a professional partnership (PLLP) which is the same as a limited liability partnership. It is also an association purely for professionals as was expressed earlier. Since each state has its own guidelines as to what services qualify as professional such persons need to check with their state.