What Is a Limited Liability Partnership?

A limited liability partnership (LLP) is an entity that allows its members to take an active role in the business of the partnership without exposing them to personal liability for actions of other partners, except to the extent of their investment in the LLP. In some partnerships, often called general partnerships, individual partners are liable for each other’s debts and obligations. An LLP is different because it provides each individual partner protection against personal liability for certain partnership liabilities.

Potential business partners often prefer these entities to general partnerships because of the liability protection, particularly when there can be a malpractice claim involved. It also allows the partners to highly structure responsibilities and profit sharing without the sometimes burdensome requirements of forming a corporation. If the partnership is a group of professionals, state law (like California’s) may bar them from forming a corporation to protect personal assets and limit liability.

For this and other reasons, professional groups such as medical practices, lawyers and accountants find limited liability partnerships attractive. In fact, in some states LLPs are only available to professionals. In other states, partnerships that offer certain professional services may be required to form a limited liability partnership and register as a professional partnership (PLLP). The PLLP is the same as a limited liability partnership, but is an association purely for professionals. Each state has its own guidelines as to what services qualify as professional. Typically, businesses such as engineers, dentists, accountants and lawyers are included. It is advised that you contact an experienced business attorney in your area for specifics on what your state requires; if you are planning to start an LLP, a business attorney can help guide you in the right direction.