home    |   about us   |   info@startup-legal.com   |   site map     

Everything you need to launch your business.

Select a state 
to start your business:

Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

Limited Liability Partnerships (LLPs)

General Definition:  A Limited Liability Partnership (LLP) is like a General Partnership, where all partners are given a right to control the entity.  However, unlike a General Partnership, a LLP provides each partner with limited liability.  In most states, LLPs are only available to a select group of professions, such as law and accounting firms.

 

Limiting Personal Liability:  Just like shareholders in a corporation or interest holders in an LLC, Limited Liability Partners are not personally liable for the debts, obligations and liabilities of the partnership.  

Exceptions to limited liability protection:

1. A LLP takes out a loan, and a partner personally guarantees the loan.  Such personal guarantees are usually required when a LLP is undercapitalized and/or has not established a credit history.
2. State and federal governments can hold the LLP partner who is responsible for reporting and paying corporate taxes personally liable for unpaid taxes or penalties that come as a result of not paying taxes.  Normally, the party burdened with personal liability is the party known as the "Tax Matters Partner."
3. Partners can be found personally liable for breach of duty that they owe to the LLP.  Partners have a "duty of care" to act responsibly when performing LLP duties.  Generally, if partners carry out their responsibilities designated to them in the Partnership Agreement, they will not be found in breach of their duty of care.

Piercing the LLP Veil: In certain limited instances, creditors or litigants can attempt to impose personal liability on principals in a LLP by claiming that the LLP is a sham, a device created merely to defraud creditors, or is being run as a sole proprietorship (e.g. the LLP has not been properly formed or there has been a commingling of corporate and individual property).  The process of imposing individual and personal liability is referred to as "piercing the corporate (or in this case 'partnership') veil" or "disregarding the corporate entity."  Ordinarily, a party seeking to pierce the partnership veil will have a heavy burden in attempting to persuade the courts to disregard the partnership entity.

 

Limited Liability Partners:  Limited Liability Partners must be individuals licensed in the profession performed by the LLP.  They are allowed to participate in the management of the partnership without risking exposure to personal liability. 

 

Meetings:  Meetings may be required depending upon state law.  Meetings may also be required by the Limited Liability Partnership Agreement created by the Limited Liability Partners.

Member Reports:  Partners are entitled to call for an accounting or inspect the financials of the Limited Liability Partnership.  Depending on state law, they may also be entitled to annual reports.

State Formalities:  Many states require Limited Liability Partnerships to file annual (in some states biannual) reports with the state, updating the general information concerning the Limited Liability Partnership and its partners.

Most states require the following words or abbreviation to be included in the name of an Limited Liability Partnership:

names	abbreviations
Limited Liability Partnership	L.L.P.

 

profit sharing

Limited Liability Partnership agreements can be drafted to pay Limited Liability Partners in a wide variety of ways.  The following is a simple list of options:

Limited Liability Partners may receive:

a percentage of Limited Partnership profits a percentage of gross revenue a percentage of Limited Partnership losses (for tax reasons) a percentage of revenue, profits or losses from a particular revenue stream of the Limited Partnership a percentage of any combination of Limited Partnership revenue, profits or losses from various revenue streams

 

tax implications for a limited liability partnership

Profits from a Limited Liability Partnership pass through to Limited Liability Partners without being taxed at the entity level.  However, a Limited Partnership will have to file an annual report with the IRS stating how much the each member earned or lost.  

In many states, a Limited Partnership will still be subject to a minimal franchise tax, much like an LLC or S Corporation.

Income received from a LLP by a Limited Liability Partner must be reported on his or her individual tax return.  Income or losses is generally regarded as active income. 

© 2003 Startup Legal, Inc.
info@startup-legal.com
site map