What Is the Definition of a Limited Liability Partnership?

Discover what a Limited Liability Partnership (LLP) is and how it might benefit your company. A LLP combines the greatest features of an LLC with a partnership.

One of the hazards of forming a partnership is that you and all of the other partners are each other’s express agents in a General Partnership. In other words, even if you don’t agree to it, your partners may bind you to a contract or a commercial arrangement for the partnership, and you must follow through on that commitment or else you will be in violation of it. If the agreement is broken, your personal assets may be used to pay the punitive penalties or credit claims. A Limited Liability Partnership, or LLP, eliminates this danger.

A Limited Liability Partnership combines the greatest features of an LLC with a partnership. In essence, no one is required to be a general partner. Each of the owners is a limited liability partner. With the liability provisions, an LLP in most jurisdictions maintains restricted risks in commercial transactions. In other words, you are only accountable to the extent that the firm has assets, regardless of how much the business owes creditors or in the litigation. In certain areas, an LLP even restricts the partners’ ability to bind one another in contractual commercial agreements. Most of the time, you’ll have to establish that if you had known about the contract, you would not have agreed to it, and that you made it plain that you didn’t want to engage into the agreement in the first place. Except in rare situations, you cannot evade that type of obligation in a General Partnership unless there is fraud or other similar criminal activity.

A Limited Liability Partnership may be formed only via an explicit Partnership Agreement that conforms with the rules of each specific state. Moreover, most states have tougher compliance requirements for partnerships in order to maintain their LLP status. If they fail to meet these standards, they may lose their LP status and return to General Partnerships.