What Is a Limited Liability Partnership (LLP)
A limited liability partnership is like a limited partnership without limited partners. An LLP has only general partners who are held personally responsible for the debts and obligations of the business. So how is this entity different from a general partnership, you ask?
Well, an LLP has an added layer of liability protection that insulates the partners from the wrongful acts of the other partners. In other words, if you’re a partner in an LLP, then you’re responsible only for your own misdeeds, not for those of a shady business partner.
LLPs emerged in the early 1990s in response to the real estate crash in the previous years. After a wave of bank failures, there was a rush to recover assets by targeting the accountants and lawyers who had advised the failed banks. LLPs were created to help shield the personal assets of the innocent lawyers and accountants from the massive claims made on their partnerships.
The new partnership structure caught on quickly, and by 1996, more than 40 states had adopted rules on the formation and governance of an LLP entity type.
LLPs are still used to this day; the structure is common for professionals such as lawyers, accountants, doctors, and architects. This entity makes sense for them because licensed professionals aren’t allowed the same levels of personal liability protection as those provided by regular LLCs and corporations. Some states allow LLPs to be used only in this manner.