(21) Limited Liability Partnership - Overview, Nature and Formation

What is a Limited Liability Partnership (LLP)?

A statutory form of general partnership that limits the personal liability of innocent partners for specified partnership obligations.

How does an LLP differ from a general partnership?

It generally operates like a general partnership but provides limited liability protection to innocent partners.

What is the purpose of creating an LLP?

To protect innocent partners from personal liability for certain partnership debts while preserving general partnership management.

Have most states adopted the uniform LLP acts?

No.

Why is the Uniform Limited Liability Partnership Act (ULLPA) incorporated into the RUPA?

Because an LLP is a specialized form of general partnership.

What is a narrow statute LLP?

An LLP that protects innocent partners only from the professional negligence or malpractice of other partners.

What type of liability does a narrow statute LLP primarily protect against?

Tort liability.

Who remains personally liable for malpractice or negligence under a narrow statute LLP?

The partner who committed the wrongful act.

Against whom may tort creditors recover in a narrow statute LLP?

The partnership assets and the personal assets of the tortfeasor partner.

Do all states define the same scope of protection under narrow LLP statutes?

No. Some states specifically identify the covered types of harm.

Must partners in a narrow statute LLP still contribute to partnership debts exceeding partnership assets?

Yes.

What is a broad statute LLP?

An LLP that protects innocent partners from virtually all partnership tort and contract liabilities created by other partners.

What additional protection does a broad statute LLP provide beyond a narrow statute LLP?

It shields innocent partners from both tort and unilateral contract liabilities.

Must innocent partners contribute personal assets toward partnership contract debts under a broad statute LLP?

No.

Whose liability protection most closely resembles that of an innocent partner in a broad statute LLP?

A limited partner in a limited partnership.

What type of partners exist in an LLP?

Only one class of partner.

Do all LLP partners have equal management rights?

Yes.

From what type of partnership are LLP management rights derived?

A general partnership.

What partnership rights remain governed by general partnership law or the partnership agreement?

Inspection of books, sharing profits and losses, compensation, indemnification, and distributions.

How does an LLP resemble a limited partnership?

It provides limited liability protection for qualifying partners.

Is an LLP's liability protection unlimited?

No. It applies only to the types of claims specified by statute and only to innocent partners.

Does becoming an LLP change the underlying nature of the partnership?

No.

Where do an LLP partner's rights, duties, and fiduciary obligations come from?

General partnership law, including the UPA and RUPA.

What may happen if an LLP fails to renew its LLP status as required by state law?

It may revert to a general partnership.

How does a general partnership become an LLP?

By satisfying the statutory registration requirements.

What filing is generally required to obtain LLP status?

A registration statement filed with the state.

Why does the partnership file a registration statement?

To elect LLP status and obtain the statutory liability shield.

Do many states require LLPs to maintain malpractice insurance?

Yes.

Why do many states require malpractice insurance for LLPs?

As a condition for receiving limited liability protection.

Do some states specify minimum insurance coverage amounts?

Yes.

Besides insurance, what additional financial requirement do many states impose on LLPs?

Maintaining a minimum amount of partnership assets.

Why do some states require LLPs to maintain minimum partnership assets?

To ensure funds are available to satisfy partnership obligations while preserving the liability shield.

Testable Issue: What is the primary difference between a narrow statute LLP and a broad statute LLP?

A narrow statute protects innocent partners primarily from malpractice and negligence claims, while a broad statute protects innocent partners from both tort and contract liabilities.

Testable Issue: Does an LLP change the internal management structure of a partnership?

No. LLPs retain the equal management rights and partnership structure of a general partnership.

Testable Issue: What determines whether an LLP partner receives liability protection?

The applicable state statute and whether the partner is innocent of the alleged wrongdoing.

Testable Issue: What statutory requirements are commonly imposed to obtain or maintain LLP status?

Filing a registration statement, maintaining required malpractice insurance, and, in many states, maintaining minimum partnership assets.

Essay Rule: How should you analyze an LLP?

Determine whether the partnership properly elected LLP status, identify whether the applicable statute is narrow or broad, determine whether the partner seeking protection is innocent of the alleged wrongdoing, and then apply general partnership law to all remaining management, fiduciary duty, and operational issues.

Master Synthesis: What is the framework for analyzing an LLP?

First determine whether the entity properly obtained LLP status, identify the scope of the applicable statutory liability shield, determine whether the partner qualifies for protection as an innocent partner, and then apply ordinary general partnership principles to management, fiduciary duties, profits, losses, and all issues not altered by the LLP statute.