Limited Liability Partnership (LLP) Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Limited Liability Partnership (LLP), written in plain English, along with examples of how it is used.
What is Limited Liability Partnership (LLP)?
Partnership that protects its members from liabilities held against their partners. Many law firms are formed as LLP’s.
History and Meaning of Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is a type of business structure that combines elements of a partnership with those of a limited liability corporation (LLC). The LLP structure was first introduced in the United States in 1991 as a way to provide professionals, such as lawyers, with the flexibility of a partnership, while also limiting their personal liability. Since then, LLPs have become a popular choice for businesses where partners want to retain some control over the management of the business while also having their personal assets protected from business liabilities.
When forming an LLP, partners must file formation paperwork with the state and adhere to specific requirements, which vary based on the state of formation. LLPs do not have to pay federal taxes, but the partners must pay a self-employment tax on their share of the profits. In addition, each partner's personal liability is limited to the amount of their investment in the partnership, and they are not personally liable for other partners' debts or obligations.
Examples of Limited Liability Partnership (LLP)
- A group of accountants opens an LLP to provide accounting services. If a client sues the firm due to a mistake they made, the partners are protected by limited liability and only the assets of the business would be at risk.
- A group of lawyers form an LLP for their law firm. If one of the lawyers commits malpractice and is sued for damages, the other partners are protected from personal liability.
- A group of doctors form an LLP to operate their medical practice. If one of the doctors is sued for medical malpractice, the other doctors in the LLP are not personally liable.
Legal Terms Similar to Limited Liability Partnership (LLP)
- Limited Partnership (LP): A type of partnership where one or more partners have limited liability and do not participate in the management of the partnership.
- Limited Liability Corporation (LLC): A hybrid business structure that combines elements of a sole proprietorship, partnership, and corporation. LLC owners are protected from personal liability and are only taxed at the individual level.
- General Partnership: A type of business organization where all partners are responsible for the management and operation of the business and are personally liable for all debts and obligations.