Limited liability partnership

From Wikipedia, the free encyclopedia

Companies law
Company · Business
Sole proprietorship
Partnership (General · Limited · LLP)
Corporation
Cooperative
United States:
S corporation · C corporation LLC · LLLP · Series LLC Delaware corporation Nevada corporation Business trust
UK/Ireland/Commonwealth:
Limited company (By shares · By guarantee) (Public · Proprietary) Community interest company
European Union/EEA:
SE · SCE
Other countries:
AB · AG · ANS · A/S · AS · GmbH
K.K. · N.V. · OY · S.A. · Full list
Doctrines
Corporate governance
Limited liability · Ultra vires
Business judgment rule
Internal affairs doctrine
De facto corporation and corporation by estoppel
Piercing the corporate veil
Rochdale Principles
Related areas of law
Contract · Civil procedure

This article may require cleanup to meet Wikipedia's quality standards. Please improve this article if you can. (May 2008)

This article or section is missing citations or needs footnotes. Using inline citations helps guard against copyright violations and factual inaccuracies. (May 2008)

A limited liability partnership (abbreviated as LLP) has 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, unlike corporate shareholders, the partners have the right to manage the business directly. Corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. Also an LLP has a different level of tax liability than 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.

There is considerable confusion between LLPs as constituted in the US and that introduced in the UK in 2001 and adopted elsewhere - see below - since the UK LLP is, despite the name, specifically legislated as a Corporate body rather than a Partnership.

Contents 1 National variations 1.1 Canada 1.2 China 1.3 Greece 1.4 India 1.5 Japan 1.6 Poland 1.7 Romania 1.8 Singapore 1.9 United Kingdom 1.10 United States 2 See also 3 Notes 4 External links

[edit] National variations

For a fuller country-by-country listing of types of partnerships and companies, see Types of business entity.

[edit] Canada

The provinces of Ontario and Alberta have permitted LLPs for lawyers. In BC, the Partnership Amendment Act, 2004 (Bill 35) permitted LLPs for lawyers and other professionals as well as to businesses.^[1]

[edit] China

It is called Special general partnership (特殊普通合伙) in China. The formation is restricted to knowledge-based professions and technical service industries. The structure shields co-partners from liabilities due to the willful misconduct or gross negligence of one partner or a group of partners.

[edit] Greece

An LLP is an equivalent to the Greek: Εταιρεία Περιορισμένης Ευθύνης (ΕΠΕ)

[edit] India

In India, a concept paper on Limited Liability Partnership Law was brought out by the Ministry of Company Affairs in 2005. In the year 2006 the Limited Liability Partnership Bill was introduced in the Parliament. The Limited Liability Partnership Act is yet to be enacted.

[edit] Japan

Limited liability partnerships (有限責任事業組合, yūgen sekinin jigyō kumiai^?) were introduced to Japan in 2006 during a large-scale revamp of the country's laws governing business organizations. Japanese LLPs may be formed for any purpose (although the purpose must be clearly stated in the partnership agreement and cannot be general), have full limited liability and are treated as pass-through entities for tax purposes. However, each partner in an LLP must take an active role in the business, so the model is more suitable for joint ventures and small businesses than for companies in which investors plan to take passive roles.^[2][3] Japanese LLPs may not be used by lawyers or accountants, as these professions are required to do business through an unlimited liability entity.^[4]

A Japanese LLP is not a corporation^[5], but rather exists as a contractual relationship between the partners, similarly to an American LLP. Japan also has a type of corporation with a partnership-styled internal structure, called a godo kaisha, which is closer in form to a British LLP or American limited liability company.

[edit] Poland

A close equivalent to limited liability partnerships under Polish law is the spółka partnerska, introduced in 2001.

[edit] Romania

An LLP is equivalent to the Romanian law vehicle known as a Societate civilă profesională cu răspundere limitată.

[edit] Singapore

LLPs are formed under the Limited Liability Partnerships Act 2005. This legislation draws on both the US and UK models of LLP, and like the latter establishes the LLP as a body corporate. However for tax purposes it is treated like a general partnership, so that the partners rather than the partnership are subject to tax (tax transparency).

[edit] United Kingdom

In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in England and Wales) and the Limited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland. A UK Limited Liability Partnership is a Corporate body - that is to say, it has a continuing legal existence independent of its Members, as compared to a Partnership which may (in England and Wales they do not) have a legal existence dependent upon its Membership.

A UK LLP's members have a collective ("Joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions. As with a limited company or a corporation Members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.

A UK LLP is tax transparent or pass-through for UK tax purposes, that is to say it pays no tax but its Members do in relation to the income or gains they receive through the LLP.

It is a unique entity in its synthesis of collective and individual rights and responsibilities and its infinite flexibility - there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.

It has to date been closely replicated by Japan - see above - and by the financial centres of Dubai and Qatar. It is perhaps closest in nature to a limited liability company in the United States of America although it may be distinguished from that entity by the fact that the LLC, while having a legal existence independent of its Members is not technically a Corporate body because its legal existence is time limited and therefore not "continuing".

[edit] United States

In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.^[6]

The limited liability partnership was formed in the aftermath of the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank and savings and loan failures. Because the amounts recoverable from the banks was small, efforts were made to recover assets from the lawyers and accountants that had advised the banks in the early-1980s. The reason was that partners in law and accounting firms were subject to the possibility of huge claims which would bankrupt them personally, and the first LLP laws were passed to shield innocent members of these partnerships from liability ^[7]

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, namely California, New York, Oregon and Nevada, LLPs can only be formed for such professional uses. Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.

The liability of the partners varies from state to state. Section 306(c) of the Revised Uniform Partnership Act (1997)(RUPA) (a standard statute adopted by a majority of the states) 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. While Tennessee and West Virginia have otherwise adopted RUPA, their respective adoptions of Section 306 depart from the uniform language, and only a partial liability shield is provided.

As in a partnership or limited liability company (LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding the problem of "double taxation" often found in corporations.

Some US states have combined the LP and LLP forms to create limited liability limited partnerships.

[edit] See also

• PC

[edit] Notes

[edit] External links

• Definition of "limited liability partnership" – "Glossary" at Nolo.com. Accessed May 24, 2008.
• "Limited Partnerships & Limited Liability Partnerships: The Basics", by Peri H. Pakroo, J.D. – Article posted in Nolo.com. Accessed May 24, 2008.