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Limited liability partnership
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A limited liability partnership (abbreviated as LLP) has elements of partnerships and corporations. It is a partnership in which all partners are limited partners. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of a limited partnership. In an LLP, all partners have a form of limited liability for each individual's protection within the partnership, similar to that of the shareholders of a corporation.
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Encyclopedia
A limited liability partnership (abbreviated as LLP) has elements of partnerships and corporations. It is a partnership in which all partners are limited partners. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of a limited partnership. In an LLP, all partners have a form of limited liability for each individual's protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly. As opposed to that, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability than a corporation.
Limited liability partnerships are distinct from limited partnerships, in that limited liability is granted to all partners, not to a subset of non-managing "limited partners." As a result the LLP is more suited for businesses where all investors wish to take an active role in management.
There is considerable confusion between LLPs as constituted in the U.S. and that introduced in the UK in 2001 and adopted elsewhere - see below - since the UK LLP is, despite the name, specifically legislated as a Corporate body rather than a Partnership.
National variations
- For a fuller country-by-country listing of types of partnerships and companies, see Types of business entity.
Canada
The provinces of Ontario and Alberta and the territory of Nunavut have permitted LLPs for lawyers. In BC, the Partnership Amendment Act, 2004 (Bill 35) permitted LLPs for lawyers and other professionals as well as to businesses.
China
It is called Special general partnership in China. The formation is restricted to knowledge-based professions and technical service industries. The structure shields co-partners from liabilities due to the willful misconduct or gross negligence of one partner or a group of partners.
Germany
The German Partnerschaftsgesellschaft or PartG is an association of non-commercial professionals, working together. Though no corporate entity, it can sue and be sued, own property and act under the partnership's name. The partners, however, are jointly and severally liable for all the partnership's debts, except when only some partners' misconduct caused damages to another party - and then only if professional liability insurance is mandatory. The Partnerschaftsgesellschaft is not subject to corporate or business tax, only its partners' respective income is taxed.
Greece
An LLP is an equivalent to the Greek: ?ta??e?a ?e?????sµ???? ???????
India
The Limited Liability Parternship Act 2008 was published in the official Gazette of India on January 9, 2009 but has not yet been notified. The Act, therefore, has not yet come into force.. Also, the relevant rules have not been notified yet and are in preparation. The Minister of Corporate Affairs has suggested that India will have it's first LLP by 1st April 2009. This, however, is a distant possibility in view of the general elections which is scheduled to take place sometime in May.
The Lok Sabha (Lower House) granted its assent to the Bill on December 12, 2008 which was earlier passed by the Rajya Sabha (Upper House) in October 2008.
The salient features of the LLP Act, 2008 are as under:-
1. The LLP has an alternative corporate business vehicle that would give the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on an agreement.
2. The LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise which fulfills the requirements of the Act.
3. While the LLP has a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
4. LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners can not exceed 20.
5. The taxation of LLPs shall be addressed in the Income Tax Act, 1961 which regulates taxation of all form of entities.
6. Provisions have been made for corporate actions like mergers, amalgamations etc.
7. While enabling provisions in respect of winding up and dissolutions of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act.
8. The Act also provides for conversion of existing partnership firm, private limited company and unlisted public company into a LLP.
9. Nothing Contained in the Partnership Act 1932 shall effect an LLP.
10. The Registrar of Companies (Roc) shall register and control LLPs also.
11. The governance of LLPs shall be in electronic mode in the successful model of the present .
Japan
were introduced to Japan in 2006 during a large-scale revamp of the country's laws governing business organizations. Japanese LLPs may be formed for any purpose (although the purpose must be clearly stated in the partnership agreement and cannot be general), have full limited liability and are treated as pass-through entities for tax purposes. However, each partner in an LLP must take an active role in the business, so the model is more suitable for joint ventures and small businesses than for companies in which investors plan to take passive roles. Japanese LLPs may not be used by lawyers or accountants, as these professions are required to do business through an unlimited liability entity.
A Japanese LLP is not a corporation, but rather exists as a contractual relationship between the partners, similarly to an American LLP. Japan also has a type of corporation with a partnership-styled internal structure, called a godo kaisha, which is closer in form to a British LLP or American limited liability company.
Kazakhstan
An LLP is equivalent "???????????? ? ???????????? ????????????????"
Poland
A close equivalent to limited liability partnerships under Polish law is the spólka partnerska, introduced in 2001.
Romania
An LLP is equivalent to the Romanian law vehicle known as a Societate civila profesionala cu raspundere limitata.
Singapore
LLPs are formed under the Limited Liability Partnerships Act 2005. This legislation draws on both the US and UK models of LLP, and like the latter establishes the LLP as a body corporate. However for tax purposes it is treated like a general partnership, so that the partners rather than the partnership are subject to tax (tax transparency).
United Kingdom
In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in England and Wales and Scotland) and the Limited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland. A UK Limited Liability Partnership is a Corporate body - that is to say, it has a continuing legal existence independent of its Members, as compared to a Partnership which may (in England and Wales they do not) have a legal existence dependent upon its Membership.
A UK LLP's members have a collective ("Joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions. As with a limited company or a corporation Members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.
In relation to tax, however, a UK LLP is similar to a partnership: it is tax transparent or pass-through, that is to say it pays no UK tax but its Members do in relation to the income or gains they receive through the LLP.
It is a unique entity in its synthesis of collective and individual rights and responsibilities and its infinite flexibility - there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.
It has to date been closely replicated by Japan - see above - and by the financial centres of Dubai and Qatar. It is perhaps closest in nature to a limited liability company in the United States of America although it may be distinguished from that entity by the fact that the LLC, while having a legal existence independent of its Members is not technically a Corporate body because its legal existence is time limited and therefore not "continuing".
More information is available on the official Companies House .
United States
In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.
The limited liability partnership was formed in the aftermath of the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank and savings and loan failures. Because the amounts recoverable from the banks was small, efforts were made to recover assets from the lawyers and accountants that had advised the banks in the early-1980s. The reason was that partners in law and accounting firms were subject to the possibility of huge claims which would bankrupt them personally, and the first LLP laws were passed to shield innocent members of these partnerships from liability
Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants and architects. In some U.S. states, namely California, New York, Oregon and Nevada, LLPs can only be formed for such professional uses. Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.
The liability of the partners varies from state to state. Section 306(c) of the Revised Uniform Partnership Act (1997)(RUPA) (a standard statute adopted by a majority of the states) grants LLPs a form of limited liability similar to that of a corporation:
- An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.
However, a sizable minority of states only extend such protection against negligence claims, meaning that partners in an LLP can be personally liable for contract and intentional tort claims brought against the LLP. While Tennessee and West Virginia have otherwise adopted RUPA, their respective adoptions of Section 306 depart from the uniform language, and only a partial liability shield is provided.
As in a partnership or limited liability company (LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding the problem of "double taxation" often found in corporations.
Some US states have combined the LP and LLP forms to create limited liability limited partnerships.
See also
External links
- – "Glossary" at Nolo.com. Accessed May 24, 2008.
- , by Peri H. Pakroo, J.D. – Article posted in Nolo.com. Accessed May 24, 2008.
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