Limited Liability Partnership

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A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation.[1] Unlike corporate shareholders, the partners have the power to manage the business directly. In contrast, corporate shareholders must elect a board of directors under the laws of various state charters.

Variation

Limited liability partnerships are distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor.[2] As a result, in these countries, the LLP is more suited for businesses in which all investors wish to take an active role in management.

In some countries, an LLP must have at least one person known as a "general partner", who has unlimited liability for the company. There is a considerable difference between LLPs as constituted in the U.S. and those introduced in the UK under the Limited Liability Partnerships Act 2000 and adopted elsewhere. The UK LLP is, despite its name, specifically legislated as a corporate body rather than as a partnership.

Limited Liability

Limited Liability Partnerships, as well as all forms of limited liability companies, offer alternatives to traditional company and corporate structures. Limited liability can enable opportunities for new business growth that was formerly accessible only to those who had access to large amounts of capital or other resources.[3] Depending on jurisdiction and industry, there can be negative consequences for stakeholders associated with limited liability. For some large accountancy firms in the UK, reorganizing as LLPs and LLCs has relieved them of owing the "duty of care" to individuals and clients who are adversely affected by audit failures.[4]

United States

In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.[5] The liability of the partners varies from state to state. Section 306(c) of the Revised Uniform Partnership Act (1997) (RUPA), a standard statute adopted by a majority of the states, grants LLPs a form of limited liability similar to that of a corporation. Some US states have combined the LP and LLP forms to create limited liability limited partnerships.[6]

United Kingdom

In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in Great Britain) and the Limited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland, with the rules governing this scheme consolidated across the UK with the Companies Act 2006, the latter coming into effect in 2009. A UK LLP's members have a collective ("joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions.[7] As with a limited company or a corporation, members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.

References

  1. Limited liability partnership | Your rights and the law
  2. Setting up a practice: regulatory requirements | The Law Society
  3. Ministry Of Corporate Affairs - Audit and Filing Requirements
  4. Why Don't Venture Capitalists Like Investing in LLP? - iPleaders
  5. The Limited Liability Partnerships Regulations 2009
  6. Create LLC | Best State to Form LLC | Opening an LLC
  7. LLP vs LLC: Legal Protections, Tax Benefits, Professional Services