Limited Liability Partnership Definition

Limited Liability Partnership Definition

A limited liability partnership (LLP) is a business entity structure. At its core, an LLP is a partnership composed of two or more individuals who agree to run a business together.

In a general partnership, all partners of the business are typically liable for the debts and liabilities of the business and the other partners. However, the cornerstone characteristic of a limited liability partnership is limited personal liability. Thus, in an LLP, while partners might be responsible for the overall liabilities incurred by the business, they are generally not liable for the errors and omissions of their fellow individual partners.

It’s worth pointing out that some states have relatively rigid restrictions regarding LLP formations. Specifically, California, New York, Oregon, and Nevada all specify that LLPs are only for certain types of professionals (i.e. doctors, lawyers, accountants, etc.).

Other Types of Legal Business Entities

Notably, there are several other business entity structures you can choose from. Thus, a limited liability partnership may not be the right entity type for all businesses. Some other common business structures in the U.S. include: 

• General partnership
• Limited partnership (LP)
• Limited liability company (LLC) 
• Sole proprietorship
• Corporation

If you’re still not sure that an LLP is the way to go, speak with a legal professional in your state to discuss these other types of entity structures and determine whether an LLP is suitable for your needs and goals. 

Limited Liability Partnership Examples in Businesses

Below are some common types of businesses that are sometimes formed as LLPs: 

• Law firms
• Financial advising businesses
• Marketing firms
• Dental offices
• Physician offices
• Accounting firms

Limited Liability Partnership Advantages

There are some advantages to setting up your small business as a limited liability partnership, including: 

• Personal liability protection: The LLP’s individual owners are not personally responsible for the misconduct, negligence, or neglect of their fellow owners.
• Flexibility in business ownership and contribution requirements: Contributions and allocations can be tailored to the needs of your specific business.
• Tax benefits: Similar to an LLC’s default taxation model, the LLP is a pass-through entity that avoids the “double taxation” of many corporations.

Limited Liability Partnership Disadvantages

Importantly, there may also be some disadvantages to consider:

• A minimum of two partners are required for formation: Unlike an LLC, you cannot form an LLP by yourself.
• One partner could make decisions unilaterally: Unless you outline each partner’s specific role in your partnership agreement, one partner could theoretically make business decisions that affect the entire company without consulting the other partners.
• Ownership restrictions in some states: Each state structures LLPs a little bit differently. In some states (like California, New York, Nevada, and Oregon), you can only form an LLP if you’re in a certain profession. While these also vary by state, they typically include “professional uses” like doctors and lawyers.

Despite these disadvantages, an LLP may still be the way to go depending on your circumstances. Check out our other small business resources or speak with a business lawyer in your state to learn more about LLPs and see whether forming one makes sense for your business.