A Limited Liability Partnership is essentially a General Partnership (see What Is A GP, LP or Parternship?), but each partner is not to liable for certain acts of other partners. State registration is required and some states require proof that the partnership has obtained adequate liability insurance or has adequate assets to satisfy potential claims. State law typically limits LLP's to formation by accountants, lawyers, architects and/or similar professionals.
An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the partnership's employees or other agents. State laws vary regarding LLP's and only about half of the states recognize them.
Each of the partners (there can be more than 2) shares in the profits and shares in the debts of the LLP, including losses, unless the partner is a limited partner. A LLP is considered an association of co-owners for tax purposes, and each co-owner is taxed on his or her proportional share of the LLP profits.
Like other businesses, a LLP needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow LLP could operate as Blow Holes.
All partners must consent in sale of the assets of the partnership. A partner's interest in a LLP is considered personal property that may be assigned to other persons, but if so transferred the transferee only receives the financial benefit and does not become a partner.
The death of a partner terminates the LLP, and filing dissolution of the partnership with the state also terminates the LLP.
Advantages of an LLP
LLP's do not have the corporate procedures of annual meetings and minutes.
With regard to taxes, the LLP is not a separate taxable entity, but instead the profits pass through to the partners who pay for them as income tax.
Disadvantages of an LLP
Any partner without the other may bind the LLP. Money and property contributed to the LLP becomes owned by the partnership unless otherwise stated and the contributor is not entitled to its return except as stated in the partnership agreements.
LLP's vary in legal requirements and liabilities by state, are not recognized in many states, do not have the easy of transfer and investment that a corporation structure provides and therefore are regarded as less preferable to other business forms.