What is an LLP?
An LLP is a partnership that limits the exposure of general partners to certain kinds of partnership liabilities. The characteristic that the LLP shares with the corporation is limited liability. Under the typical LLP law, a general partner in an LLP:
Is not liable for the debts and obligations of the LLP arising from errors, negligence, wrongful acts, or misconduct committed in the course of the partnership's business by another partner or by an employee, agent, or representative of the LLP
Is liable for the general obligations of the partnership
Is liable for obligations arising from his or her own misconduct, and for obligations arising from the misconduct of a person over which he or she has direct supervision and control
May be liable when the partner had notice or knowledge of misconduct by another partner or representative
Origin of LLPs
Under traditional partnership law, each partner has the power to bind the partnership. The partnership is liable for the wrongful acts of any partner acting in the ordinary course of the partnership's business. In addition, partners in a general partnership are personally liable for partnership obligations if the assets of the partnership are insufficient to satisfy them. Therefore, partners in a general partnership are subject to personal liability for the negligence of other partners. These rules developed when partnerships were small and partners were aware of each other's activities.
In the 1990s, several trends combined to increase the risks to which partners of a general partnership were exposed under traditional partnership liability rules, especially in law and accounting firms. Among these trends were:
An increase in the number of partners in general partnerships
An increase in the complexity of practice areas at larger general partnerships
An increasing number of malpractice suits filed against larger general partnerships
Escalating malpractice insurance costs
The proliferation of claims with very high dollar values, such as claims brought by government regulators against law and accounting firms in connection with the savings and loan crisis
The limited liability partnership was conceived in the 1990s to address the needs of partners in light of these developments. The first limited liability partnership law was enacted in Texas in 1991. Almost all states currently have LLP laws.
LLP laws generally permit partners in professional general partnerships to shield themselves from liability for contractual obligations of the partnership, but hold them personally liable for their own negligent or wrongful acts and for the negligent or wrongful acts of individuals acting under their supervision or control. Partners are not liable for debts and obligations resulting from the negligence of other partners. Generally, rules applicable to general partnerships, including those that govern contributions, management, operation and dissolution, apply to LLPs.
State laws vary on the kinds of protections that they provide to partners in an LLP. Although the first Texas law shielded partners from personal liability only for partnership obligations arising from the malpractice of other partners, some more recent laws protect partners in LLPs from all partnership debts.
Source : Lawyers.com
Links:
http://www.lectlaw.com/files/buo04.htm
http://www.sos.state.ia.us/business/limliabpart.html
http://cpajournal.blogspot.com/2009/02/uniform-limited-partnership-act-2001.html
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