Limited Liability Partnership

Overview

A limited liability partnership (LLP) is a partnership in which the liability of all of the partners is limited.  Generally, the partners in an LLP are liable only to the extent of their original investments; they are not responsible for the errors, negligence, malpractice, wrongful acts, or misconduct of their partners or employees unless they themselves are directly supervising, controlling, or involved in the action.

The requirements for registering a LLP vary from state to state. Certain states restrict the LLP registration to designated professionals such as public accountants and attorneys.  This imposes a limitation on the partners of an LLP to only licensed practitioners in the profession in which the LLP is engaged. Many other states have no such restriction on who may form a LLP, though registration may still require the LLP to maintain minimum liability or other insurance requirements or security.

LLPs are governed like general partnerships and have a similar degree of management flexibility.  The partnership agreement allows the LLP to describe the specific duties and responsibilities of the partners as well as the powers and authority of the partners.

LLPs are formed at the state level by filing a Certificate of Registration or similar document with the Secretary of State or other formation agency and paying the required filing fee. A LLP usually must designate a registered agent and is often subject to payment of a state franchise tax for the privilege of operating as a limited liability entity.

No income tax is paid by the LLP as an entity. Profits and losses are reported on the partners’ tax returns, and any tax due on business income is paid at the individual level. However, an LLP is typically is subject to any state franchise taxes for the privilege of operating as a limited liability entity.


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