Legal Definitions - limited liability partnership (LLP)

A Limited Liability Partnership (LLP) is a business structure designed for two or more partners that combines elements of a traditional partnership with the liability protection typically found in a corporation. In an LLP, each partner benefits from limited personal liability, meaning their personal assets are generally shielded from the partnership's debts and obligations.

Specifically, a key advantage of an LLP is that partners are typically not held personally responsible for the professional negligence (malpractice) or misconduct of another partner. However, a partner remains personally liable for their own actions and, depending on state law, might still bear some responsibility for the partnership's general contractual debts. This structure is particularly popular among professional service firms, such as law firms, accounting firms, and architectural practices, where multiple professionals collaborate.

LLPs offer flexibility in how partners manage the business and share profits, allowing them to define roles and responsibilities in their partnership agreement. Unlike some other business forms, partners in an LLP can actively participate in the management of the business without losing their limited liability protection. However, courts can, in rare circumstances, "pierce the corporate veil" and hold partners personally liable if they find evidence of fraud or improper conduct intended to defraud creditors.

Here are some examples illustrating how a Limited Liability Partnership works:

• Law Firm Malpractice: Imagine "Justice & Associates LLP," a large law firm with ten partners. One partner, Sarah, makes a significant error in a client's case, leading to a multi-million dollar malpractice lawsuit against the firm. Because Justice & Associates is an LLP, the personal assets of the other nine partners (e.g., their homes, personal savings, investments) are generally protected from this malpractice judgment. While the firm's assets would be at risk, and Sarah herself would be personally liable for her actions, the other partners' personal wealth is typically shielded from Sarah's professional mistake.

• Accounting Firm Business Debt: Consider "Numbers & Co. LLP," an accounting firm with five partners. The firm decides to take out a substantial loan to expand its office space and purchase new software. Later, due to unforeseen economic challenges, the firm struggles financially and defaults on the loan. In many states, the limited liability protection of an LLP would mean that the individual partners' personal assets are not automatically seized to repay the firm's business loan. The bank would primarily pursue the assets of Numbers & Co. LLP itself, protecting the partners from personal bankruptcy due to the firm's contractual debts, though specific state laws vary on the extent of this protection for contractual obligations.

• Architectural Design Error: "Urban Visions LLP" is an architectural firm with three partners. One partner, Emily, is overseeing a major commercial project and makes a design error that causes significant structural issues, leading to a lawsuit against the firm for professional negligence. Because Urban Visions is structured as an LLP, the personal assets of the other two partners are shielded from this professional negligence claim. They are not personally liable for Emily's specific professional mistake, even though the firm itself would be responsible for the damages.