Limited Liability Partnership

Overview

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  • A limited liability partnership (LLP) is a general partnership that has registered with the Secretary of State.
  • Some state statutes restrict an LLC to certain limited types of professional practices. These often include such professions as public accountancy, architecture, law, or medicine. All partners must be licensed, registered, or authorized to practice in the specified professions.
  • Like members in an LLC, partners, as such, are not held personally responsible for business debts and liabilities of the LLP. However, a partner may still be held liable for personally participating in the actions that created the liability for the LLP. The LLP form protects the other partners whose actions were not involved.
  • An LLP and/or its partners are generally required to provide insurance coverage or other adequate security to cover damages caused by the malpractice of the LLP or its partners.
  • 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.
  • An LLP is typically is subject to any state franchise taxes for the privilege of operating as a limited liability entity.
  • Forming an LLP generally requires filing a registration form with the Secretary of State.
  • The partners will generally enter into a partnership agreement to define the rights and obligations of the partners, how distributions of profits and losses will be handled, any restrictions on transfers of partnership interests, and similar important matters that are generally not adequately covered in state LLP statutes.


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