9:07
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Simple English definitions for legal terms
limited liability partnership (LLP)
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A quick definition of limited liability partnership (LLP):
A limited liability partnership (LLP) is a type of partnership where each partner is only responsible for their own actions and debts, and not those of the other partners. This means that if the partnership owes money or is sued, each partner is only responsible for their share of the debt or damages. LLPs are often used by professionals and larger partnerships, and can be structured in different ways to give each partner different levels of control and profits. However, if the partners act improperly and try to cheat creditors, they may lose their limited liability protection.
A more thorough explanation:
A Limited Liability Partnership (LLP) is a type of partnership where each partner has limited personal liability for the debts of the partnership. This means that partners are not responsible for the tortious damages of other partners, but they may be responsible for contractual debts depending on the state. LLPs are popular for larger partnerships, especially for professionals, and some states only allow professionals to use the LLP format.
An LLP must have at least two partners, but it has flexibility in structuring how much control and proceeds each partner retains. Almost all decisions in an LLP can be allocated to certain partners except those involved in changing the partnership agreement, which require approval from all partners.
Unlike with limited partnerships, LLPs allow limited liability even if partners remain involved in the management of the business. However, if a court finds that the partners attempted to undermine creditors, such as with improper distributions, the court may pierce the veil of limited liability to claw back funds for creditors. The actions that would trigger such treatment require a case-by-case analysis with the relevant state laws.
Example 1: A group of lawyers decides to form an LLP to provide legal services. Each lawyer has limited liability for the debts of the partnership, so if the partnership is sued, the lawyers' personal assets are protected.
Example 2: A group of doctors decides to form an LLP to open a medical practice. Each doctor has limited liability for the debts of the partnership, so if the practice is sued, the doctors' personal assets are protected.
These examples illustrate how an LLP can be used by professionals to protect their personal assets while still allowing them to work together in a partnership.