Limited liability partnership
Encyclopedia
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

s and corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

s. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of an unlimited partnership. In an LLP, some partners have a form of limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...

 similar to that of the shareholders of a corporation. In some countries, an LLP must also have at least one "general partner" with unlimited liability. Unlike corporate shareholders the partners have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability from that of a corporation.

Limited liability partnerships are distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries the LLP is more suited for businesses where all investors wish to take an active role in management.

There is considerable confusion between LLPs as constituted in the U.S. and that introduced in the UK in 2001 and adopted elsewhere - see below - since the UK LLP is, despite the name, specifically legislated as a Corporate body rather than a Partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

.

National variations

For a fuller country-by-country listing of types of partnerships and companies, see Types of business entity.

Canada

The provinces of Quebec
Quebec
Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....

, Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....

, Manitoba
Manitoba
Manitoba is a Canadian prairie province with an area of . The province has over 110,000 lakes and has a largely continental climate because of its flat topography. Agriculture, mostly concentrated in the fertile southern and western parts of the province, is vital to the province's economy; other...

, Alberta
Alberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...

, Nova Scotia
Nova Scotia
Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...

, New Brunswick
New Brunswick
New Brunswick is one of Canada's three Maritime provinces and is the only province in the federation that is constitutionally bilingual . The provincial capital is Fredericton and Saint John is the most populous city. Greater Moncton is the largest Census Metropolitan Area...

, Saskatchewan
Saskatchewan
Saskatchewan is a prairie province in Canada, which has an area of . Saskatchewan is bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, and on the south by the U.S. states of Montana and North Dakota....

, Newfoundland and Labrador
Newfoundland and Labrador
Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400...

 and the Northwest territories
Northwest Territories
The Northwest Territories is a federal territory of Canada.Located in northern Canada, the territory borders Canada's two other territories, Yukon to the west and Nunavut to the east, and three provinces: British Columbia to the southwest, and Alberta and Saskatchewan to the south...

 (the only exceptions are Yukon
Yukon
Yukon is the westernmost and smallest of Canada's three federal territories. It was named after the Yukon River. The word Yukon means "Great River" in Gwich’in....

, Prince Edward Island
Prince Edward Island
Prince Edward Island is a Canadian province consisting of an island of the same name, as well as other islands. The maritime province is the smallest in the nation in both land area and population...

 and Nunavut
Nunavut
Nunavut is the largest and newest federal territory of Canada; it was separated officially from the Northwest Territories on April 1, 1999, via the Nunavut Act and the Nunavut Land Claims Agreement Act, though the actual boundaries had been established in 1993...

) have permitted LLPs for lawyers and accountants. In BC, the Partnership Amendment Act, 2004 (Bill 35) permitted LLPs for lawyers and other professionals as well businesses.

China

In China, the LLP is known as a Special general partnership
Partnership (China)
A partnership in the People's Republic of China is a business entity governed by the passed by order of the President of the People's Republic of China to authorize and govern partnership enterprises...

 (特殊普通合伙). The organizational form is restricted to knowledge-based professions and technical service industries. The structure shields co-partners from liabilities due to the willful misconduct or gross negligence of one partner or a group of partners.

Germany

The German Partnerschaftsgesellschaft or PartG is an association of non-commercial professionals, working together. Though no corporate entity, it can sue and be sued, own property and act under the partnership's name. The partners, however, are jointly and severally liable for all the partnership's debts, except when only some partners' misconduct caused damages to another party - and then only if professional liability insurance
Professional liability insurance
Professional liability insurance , also called professional indemnity insurance but more commonly known as errors & omissions in the US, is a form of liability insurance that helps protect professional advice- and service-providing individuals and companies from bearing the full cost of defending...

 is mandatory. The Partnerschaftsgesellschaft is not subject to corporate or business tax, only its partners' respective income is taxed.

Greece

An LLP is an approximate equivalent to the Greek EPE (Etaireia Periorismenis Euthinis), which more closely resembles a Limited Partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...

.

India

The Limited Liability Partnership Act 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31 March 2009. However, the Act, has been notified with limited sections only. The rules have been notified in the official gazette on April 1, 2009. The first LLP was incorporated in the first week of April 2009.

In India for all purposes of taxation, an LLP is treated like any other partnership firm.

be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

4. LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners can not exceed 20, LLP Act makes a mandatory statement where one of the partner to the LLP should be an Indian.

5. Provisions have been made for corporate actions like mergers, amalgamations etc.

6. While enabling provisions in respect of winding up and dissolutions of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act.

7. The Act also provides for conversion of existing partnership firm, private limited company and unlisted public company into a LLP by registering the same with the Registrar of Companies (ROC)

8. Nothing Contained in the Partnership Act 1932 shall effect an LLP.

9. The Registrar of Companies (Roc) shall register and control LLPs also.

10. The governance of LLPs shall be in electronic mode based on the successful model of the present Ministry of Corporate Affairs Portal. Visit LLP Portal to register a new LLP.

Japan

were introduced to Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

 in 2006 during a large-scale revamp of the country's laws governing business organizations. Japanese LLPs may be formed for any purpose (although the purpose must be clearly stated in the partnership agreement and cannot be general), have full limited liability and are treated as pass-through entities for tax purposes. However, each partner in an LLP must take an active role in the business, so the model is more suitable for joint ventures and small businesses than for companies in which investors plan to take passive roles. Japanese LLPs may not be used by lawyers or accountants, as these professions are required to do business through an unlimited liability entity.

A Japanese LLP is not a corporation, but rather exists as a contractual relationship between the partners, similarly to an American LLP. Japan also has a type of corporation with a partnership-styled internal structure, called a godo kaisha
Godo kaisha
A gōdō gaisha , abbreviated GK, is a type of business organization in Japan modeled after the American limited liability company...

, which is closer in form to a British LLP or American limited liability company
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...

.

Poland

A close equivalent to limited liability partnerships under Polish
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...

 law is the spółka partnerska, introduced in 2001. This kind of company can be formed only by min. two individuals which doing the Professional services
Professional services
Professional services is an industry of infrequent, technical, or unique functions performed by independent contractors or by consultants whose occupation is the rendering of such services....

. Other activities are forbidden.

Romania

An LLP is equivalent to the Romanian law vehicle known as a Societate civilă profesională cu răspundere limitată.

Singapore

LLPs are formed under the Limited Liability Partnerships Act 2005. This legislation draws on both the US and UK models of LLP, and like the latter establishes the LLP as a body corporate. However for tax purposes it is treated like a general partnership, so that the partners rather than the partnership are subject to tax (tax transparency).

United Kingdom

In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 LLPs are governed by the Limited Liability Partnerships Act 2000
Limited Liability Partnerships Act 2000
The Limited Liability Partnerships Act 2000 is an Act of the Parliament of the United Kingdom which introduced the concept of the limited liability partnership into English and Scots law...

(in Great Britain
Great Britain
Great Britain or Britain is an island situated to the northwest of Continental Europe. It is the ninth largest island in the world, and the largest European island, as well as the largest of the British Isles...

) and the Limited Liability Partnerships Act (Northern Ireland) 2002
Limited Liability Partnerships Act (Northern Ireland) 2002
The Limited Liability Partnerships Act 2002 is an Act of the Northern Ireland Assembly which introduced the concept of the limited liability partnership into Northern Irish law, passed two years after the Limited Liability Partnerships Act 2000 introduced the concept into the law of England and...

in Northern Ireland
Northern Ireland
Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...

. A UK limited liability partnership is a corporate body - that is to say, it has a continuing legal existence independent of its members, as compared to a Partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

 which may (in England and Wales, does not) have a legal existence dependent upon its membership.

A UK LLP's members have a collective ("Joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions. As with a limited company
Limited company
A limited company is a company in which the liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by shares or by guarantee. And the former of these, a limited company limited by shares, may be...

 or a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.

In relation to tax, however, a UK LLP is similar to a partnership: it is tax transparent or pass-through, that is to say it pays no UK tax but its members do in relation to the income or gains they receive through the LLP.

It is a unique entity in its synthesis of collective and individual rights and responsibilities and its flexibility - there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.

It has to date been closely replicated by Japan - see above - and by the financial centres of Dubai and Qatar. It is perhaps closest in nature to a limited liability company
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...

 in the United States of America although it may be distinguished from that entity by the fact that the LLC, while having a legal existence independent of its members is not technically a corporate body because its legal existence is time limited and therefore not "continuing".

The LLP structure is commonly used by accountant
Accountant
An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...

s, as a company may not act as auditor to another company. LLPs are also becoming more common by firms in the legal profession such as solicitor
Solicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...

s and patent attorney
Patent attorney
A patent attorney is an attorney who has the specialized qualifications necessary for representing clients in obtaining patents and acting in all matters and procedures relating to patent law and practice, such as filing an opposition...

s that by law are prohibited incorporating as companies.
More information is available on the official Companies House website.

United States

In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, each individual state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

 has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act
Uniform Partnership Act
The Uniform Partnership Act , which includes revisions that are sometimes called the Revised Uniform Partnership Act , is a uniform act , proposed by the National Conference of Commissioners on Uniform State Laws for the governance of business partnerships by U.S. States...

 in 1996.

The limited liability partnership was formed in the aftermath of the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank and savings and loan failures. Because the amounts recoverable from the banks were small, efforts were made to recover assets from the lawyers and accountants that had advised the banks in the early-1980s. The reason was that partners in law and accounting firms were subject to the possibility of huge claims which would bankrupt them personally, and the first LLP laws were passed to shield innocent members of these partnerships from liability.

Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants, and architects. In some U.S. states, namely California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...

, New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...

, Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...

, and Nevada
Nevada
Nevada is a state in the western, mountain west, and southwestern regions of the United States. With an area of and a population of about 2.7 million, it is the 7th-largest and 35th-most populous state. Over two-thirds of Nevada's people live in the Las Vegas metropolitan area, which contains its...

, LLPs can only be formed for such professional uses. Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.

The liability of the partners varies from state to state. Section 306(c) of the Revised Uniform Partnership Act (1997)(RUPA) (a standard statute adopted by a majority of the states) grants LLPs a form of limited liability similar to that of a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

:
An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.


However, a sizable minority of states only extend such protection against negligence claims, meaning that partners in an LLP can be personally liable for contract and intentional tort claims brought against the LLP. While Tennessee and West Virginia have otherwise adopted RUPA, their respective adoptions of Section 306 depart from the uniform language, and only a partial liability shield is provided.

As in a partnership or limited liability company
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...

 (LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding the problem of "double taxation
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...

" often found in corporations.

Some US states have combined the LP and LLP forms to create limited liability limited partnership
Limited liability limited partnership
The limited liability limited partnership is a relatively new modification of the limited partnership, a form of business entity recognized under U.S. commercial law. An LLLP is a limited partnership and as such consists of one or more general partners and one or more limited partners...

s.

External links

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