Who Are the Principal Owners for a Limited Liability Partnership?

by Kevin Doran; Updated September 26, 2017
Lawyers in a Law Library

A limited liability partnership is a specialized type of partnership in which all of the partners have some kind of limited liability. It is a formal business entity, meaning it must be created by filing the appropriate paperwork with the state. LLPs are not a common form of business, as many people will either forgo the formality and use a handshake or general partnership agreement or, in the alternative, use a more well recognized entity like a corporation or limited liability company. However, an LLP can be a useful business form for certain kinds of businesses.

Partnership Structure

A limited liability partnership is not centralized in the way a corporation is. The work and management are shared by the partners, who are all owners. The partner-owners in an LLP will normally all invest their time and effort into the business and share in the profits and losses. A larger LLP may set up committees to handle specific business without requiring a full partnership meeting, but the ultimate authority for the partnership rests with the partners, who vote in accordance with their proportion of ownership.

Limited Liability

What sets an LLP apart from other partnerships is that every member has limited liability for the debts or obligations of other members. In a general partnership, all of the members are fully liable for all debts of the partnership; in a limited partnership, the limited partners are liable only up to their investment, while the general partner is fully liable for all debts of the partnership. In the LLP, a partner cannot be held personally liable for a negligent act committed by another partner or another party not under her control. As a result, this form of business is attractive for professionals who risk professional malpractice claims, as it allows partners to be insulated from one another's negligence.

Types of Activities

Professionals like attorneys, accountants and architects are most likely to use the LLP structure. Some states, including California, restrict LLPs to licensed professionals in these fields. Even when the state does not expressly limit the ownership of LLPs, the owners will most likely be involved in the same profession because, as partners, they all will be engaged in doing the work of the partnership.

Financial Limitations

Because of the restrictions on ownership of LLPs, they are not good entities for raising investment from third parties. Even if the laws don't prevent nonlicensed professionals from being owners of an LLP, the professional code governing the LLP's licensed members might prohibit sharing a practice with people outside the profession. This means that the owners of an LLP will generally be the people actively engaged in the business and not passive investors.

About the Author

Kevin Doran has been a writer and editor since 2009 whose work has been published in the "Southwestern Journal of International Law." He received a BA in Classics from USC and a JD from Southwestern Law School and is currently pursuing an MA in History at Western New Mexico University.

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