What is a limited liability partnership (LLP)?

 

The limited liability partnership (LLP) is similar to a limited partnership (LP) but an LLP has no general partners. All of the owners / partners of an LLP have limited personal liability for business debts of the partnership.

 

LLPs are business structures that are ideal for professionals such as lawyers and accountants because one partner is not responsible or liable for another partner's misconduct or negligence. Some states, including New York, permit the formation for an LLP only for professionals. LLPs protect the limited partners from the debts and liabilities that can arise from for another partner's problems -- particularly those involving malpractice claims. A partner who loses a malpractice suit for his own mistakes, however, remains fully liable. 

 

How is an LLP formed?

 

Delaware:

 

  • The Delaware Revised Uniform Partnership Act, 6 Del. C. § 15-101 et seq. ("DRUPA") governs Delaware LLPs. An LLP is a general partnership that has elected to become an LLP. A general partnership may be formed as, or may become, an LLP pursuant to Section 15-1001 of DRUPA.  

 

  • In order for a general partnership to form initially as an LLP, the original partnership agreement of the general partnership must state that the general partnership is formed as an LLP, and the general partnership must file a statement of qualification in accordance with DRUPA. 

 

  • In order for an existing general partnership to become an LLP, the terms and conditions on which the general partnership becomes an LLP must be approved by the vote necessary to amend the partnership agreement and, in the case of a partnership agreement that expressly considers obligations to contribute to the general partnership, also the vote necessary to amend those provisions, and after such approval, the general partnership must file a statement of qualification in accordance with DRUPA. An LLP continues to be the same partnership that existed before the filing of its statement of qualification.

 

  • The statement of qualification for a Delaware LLP must contain: 

    • the name of the partnership, which must contain as the last words or letters of its name the words "Limited Liability Partnership," the abbreviation "L.L.P." or the designation "LLP,"  

    • the address of the registered office in the State of Delaware and the name and address of the registered agent in the State of Delaware for service of process,

    • the number of partners of the partnership; a statement that the partnership elects to be an LLP, and

    • the future effective date or time of the statement of qualification if it is not to be effective upon the filing of the statement of qualification.  

 

  • An LLP should file a statement of partnership existence in addition to the statement of qualification. Under Section 15-106(c) of DRUPA, if a partnership agreement provides for the application of the laws of the State of Delaware and the LLP files a statement of partnership existence, then the partnership agreement will be governed by and construed under the laws of the State of Delaware.

 

  • An LLP must also file an annual report with the Secretary of State of the State of Delaware which contains: the name of the LLP and the number of partners of the LLP; and the address of the registered office and the name and address of the registered agent for service of process. An annual report must be filed by the first day of June of each year following the calendar year in which a statement of qualification filed by an LLP becomes effective.  

 

  • An LLP is managed and operated the same as a general partnership. The partnership agreement governs relations among the partners and between the partners and the LLP. The partnership agreement may be written, oral or implied.  The partnership agreement may modify many of the default provisions of DRUPA that concern the relations among the partners and between the partners and the LLP.

 

New York:

 

  • The New York State Partnership Law governs New York LLPs. New York permits LLPs to be formed only for professionals who are authorized to render professional services within New York.

 

  • A general partnership, each of whose partners is a professional authorized by law to render a professional service, may register as a limited liability partnership with the New York Department of State by filing a Certificate of Registration pursuant to Section 121-1500(a) of the New York State Partnership Law. "Profession" includes any practice as an attorney and counselor-at-law, or as a licensed physician, and those occupations designated in Title Eight of the New York State Education Law. 

 

  • The New York LLP Certificate of Registration needs to only contain the following information: 

    • the address of the LLP’s principal office,

    • the profession or professions to be practiced by the LLP and statement that it eligible to register as an LLP,

    • a designation of the Secretary of State as agent of the LLP upon whom process against the LLP may be served and the post office address within or without New York to which the Secretary of State is to mail a copy of any process served upon him or her,

    • if the LLP is to have a registered agent, such agent’s name and New York address, and a statement that the registered agent is to be the agent of the limited partnership upon whom process against it may be served,

    • a statement that the partnership without limited partners is filing a registration for status as a registered limited partnership,

    • if the registration of the LLP is to be effective on a date later than the time of filing, the date, not to exceed 60 days from the date of such filing, and

    • a statement detailing whether all or specified partner of the LLP are to be liable in their capacity as partners for all or specified debts, obligations or liabilities of the LLP.

 

  • Certificate of Publication: Section 121-1500 of the New York State Partnership Law requires that within 120 days after the filing of the certificate of LLP, a LLP must publish in two newspapers, once a week for six consecutive weeks, a copy of the certificate of registration or a notice containing the substance thereof.  The newspapers must be designated by the county clerk of the county in which the office of the LLP is located.  After publication, the printer or publisher of each newspaper will provide the LLP with an affidavit of publication.  A certificate of publication, with the affidavits of publication of the newspapers attached, must be submitted to the NY Department of State.  The fee for filing the certificate of publication is $50. 

 

  • Each registered LLP must within 60 days prior to the 5th anniversary of the effective date of its registration and every five years thereafter, furnish a statement to the NY Department of State setting forth:

    • the name of the registered LLP,

    • the address of the LLP’s principal office,

    • a statement that it eligible to register as an LLP, and

    • the address within or without New York to which the Secretary of State is to mail service of process. The filing fee for the statement is $20.

 

  • In general, a New York LLP is managed and operated the same as a general partnership.  The partnership agreement governs relations among the partners and between the partners and the LLP.  The partnership agreement may modify many of the default provisions of NY LP Act that concern the relations among the partners and between the partners and the LLP.

 

What are the advantages of a limited liability partnership?

 

The most significant advantage of a limited liability partnership is that it provides each of its limited partners protection against claims and obligations arising from the malpractice and negligence of other limited partners. The other advantages of an LLP are generally similar to that of a limited partnership.

 

What are the disadvantages of a limited liability partnership?

 

Unlike general partnerships, limited liability partnerships are not recognized as legal business structures in every state. Some states, including New York, limit the creation of a limited liability partnership to professionals such as doctors or lawyers. Another disadvantage is that individual partners are not obligated to consult with other participants in certain business agreements unless expressly provided otherwise in the partnership agreement. For the protection of the overall integrity of the LLP, it is highly advisable that a comprehensive partnership agreement be created and adopted that specifically sets out what each limited partner can and cannot do when making business decisions.

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