LLPs

An LLP, or limited liability partnership, is a business structure that offers limited liability to its partners while preserving the flexible governance and tax transparency of a traditional partnership. It is commonly used by professional service firms such as law, accounting, and architecture practices, but may be available to other ventures depending on jurisdiction.

Liability protections in an LLP generally shield partners from personal liability for the debts and obligations of the partnership arising from other partners’ acts. Partners typically remain liable for their own professional misconduct, negligence, or contracts. The precise scope of protection varies by country or state and by professional regulation, and some jurisdictions require professional indemnity insurance or similar arrangements.

Formation and governance: An LLP is formed by filing with the appropriate governmental authority and is governed by an agreement among the partners. The agreement sets out management rights, profit sharing, admission and withdrawal of partners, and the process for dissolution. Management can be structured to involve all partners or to designate one or more managing partners.

Tax treatment: Many LLPs are treated as pass-through entities for tax purposes, with profits and losses allocated to the partners and reported on their personal returns. In some jurisdictions, the LLP itself pays taxes or must file informational returns, and partners may face self-employment or other taxes.

Notes by jurisdiction: In the United Kingdom, LLPs are created under the Limited Liability Partnerships Act 2000, with profits taxed as the partners’ income. In the United States, LLPs are defined by state law and generally provide liability protection for partners from the partnership’s debts, while enabling pass-through taxation in many states.

Comparison and scope: LLPs differ from general partnerships in liability protection and from corporations in governance and, often, taxation. Availability and rules vary widely by jurisdiction and by professional sector.