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LLP
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A quick definition of LLP:
A limited liability partnership (LLP) is a type of partnership where each partner is only responsible for a limited amount of the partnership's debts. This means that if the partnership owes money, the partners will not have to pay more than their share. LLPs are often used by professionals and larger partnerships. They must have at least two partners, and each partner can have different levels of control and profits. However, if the partners do something wrong, like not paying their debts, a court may make them pay more than their share.
A more thorough explanation:
Definition: 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.
For example, a group of lawyers may form an LLP to protect themselves from personal liability for the debts of the partnership. If the partnership is sued for malpractice, each lawyer's personal assets are protected from being seized to pay the damages.
LLPs must have at least two partners, but they have flexibility in structuring how control and profits are divided among partners. Most decisions in an LLP can be allocated to certain partners, except for changes to the partnership agreement, which require approval from all partners.
Unlike limited partnerships, LLPs allow partners to have limited liability even if they are involved in managing the business. However, if a court finds that partners attempted to undermine creditors by making improper distributions, the court may "pierce the veil" of limited liability and require partners to pay back funds to creditors. This decision depends on the specific laws of the state where the LLP is registered.
Example: A group of doctors may form an LLP to protect themselves from personal liability for the debts of the partnership. If the partnership is sued for medical malpractice, each doctor's personal assets are protected from being seized to pay the damages.
This example illustrates the definition of LLP by showing how professionals can use this type of partnership to protect themselves from personal liability for the debts of the partnership. The doctors can work together as a partnership, but they are not personally responsible for each other's mistakes or debts.
Compare with: Limited partnership and limited liability company (LLC).