A limited liability partnership (LLP) is similar to a general partnership, except the partners are not personally liable for negligent acts conducted by other partners or employees not under their supervision. This is different from a general partnership, in which each partner is liable for the debts and obligations of the business as well as the malpractice of any other partner. Income taxes in an LLP are passed through the business and reflected on the partners’ individual tax returns. Because of the limited liability of each partner and pass-through tax status, LLPs are a very popular business structure.
There are certain disadvantages to forming an LLP, however. For example, limited partners lose limited liability if they participate in the daily operation of the business, and the LLP must pay an annual fee to the state based on the number of partners. Also, in certain states, LLPs are only available for particular types of businesses, such as law and accounting firms.
States that have enacted LLP legislation to date include Arizona, California, Connecticut, Delaware, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, New York, North Carolina, Ohio, South Carolina, Texas, Utah, Virginia, and the District of Columbia.
You can form an LLP by filing the appropriate papers with your state. Each state has its own application process, so consult a lawyer to determine the proper application method for your state.
To learn more about the benefits of both LLPs and LLCs (Limited Liability Comanies), be sure to read What Are the Benefits of LLCs and LLPs?