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Limited Liability Partnerships Expanded

A limited liability partnership (LLP) shares common features with other types of partnerships. As with a general partnership, all partners in a LLP are liable for commercial debts and other partnership actions. However, when one partner is held responsible for malpractice, under LLP statues only that partner is liable for any claim and all other partners are personally shielded from any liability incurred by the misconduct of the liable partner. A majority of states have adopted the Revised Uniform Partnership Act have and extended this important provision to cover not only tort claims but contract claims as well.

While partners have continued liability of debts and personal liability if sued for malpractice, the LLP is a wise choice for most professionals because no partner is liable for another partner's inappropriate or negligent practice. This permits high-risk professions to benefit from forming a partnership without sacrificing their individual personal wealth due to another partner's mistakes. Professional's Asset Protection actually improves when a professional conducts their practice via a LLP, which is the complete opposite of a general partnership, which is the most dangerous business structure for professional partners because each partner has unlimited liability for all partnership debts.

In the event that you prefer a partnership structure, each professional operating as a partner should organize their own professional corporation or LLC, which can become partners in the partnership. Despite the cumbersome nature of this structure (versus a LLP), it provides certain tax, regulatory, and organizational advantages. While in a general partnership the partners are all equally liable for partnership debts, they actually enjoy pass-through tax benefits that are not found in a corporation. In a limited partnership, all partners except one have limited liability. This "general partner" remains personally liable for any and all partnership debts.

A LLP can help to substantially minimize the risk of its partners but no single structure can completely eliminate all risk. It is important to augment Asset Protection via entity design with malpractice insurance for any professional LLP and to consider taxes, state regulations and other factors when creating any limited liability partnership agreement.


The best defense is a good offense.