Limited liability partnership

From Wikicpa

A limited liability partnership (LLP) is a form of business organization combining elements of partnerships and corporations. In an LLP, all partners have a form of limited liability, similar to that of the shareholders of a corporation. However, the partners have the right to manage the business directly, and (in many areas) a different level of tax liability than in a corporation.

Limited liability partnerships are distinct from limited partnerships, in that limited liability is granted to all partners, not to a subset of non-managing "limited partners." As a result the LLP is more suited for businesses where all investors wish to take an active role in management. However, some US states have combined the two forms to create limited liability limited partnerships.

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 (including California and New York), LLPs can only be formed for such professional uses.

In the United States, each individual state has its own law governing their formation.

The liability of the members of an LLP varies from state to state. Section 306(c) of the Uniform Partnership Act, a guideline upon which many state laws are based, grants LLPs a form of limited liability similar to that of a corporation. "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.

As in a partnership or limited liability company (LLC), the profits of an LLP are distributed among the partners for tax purposes; the LLP is "tax transparent". This avoids the problem of "double taxation" often found in corporations. An LLC differs from an LLP in that the LLP has the organizational flexibility of a partnership. Furthermore, LLCs are more likely to be subject to a state's franchise taxes.

Source: wikipedia adapted