Limited Liability Partnership LLP
Stands for: Limited Liability Partnership
A partnership where every partner has limited liability for the firm's debts and for the malpractice of other partners, common in professional services.
Definition
A **Limited Liability Partnership (LLP)** is a partnership in which all partners receive a statutory shield against the firm's debts and against malpractice committed by other partners. Each partner remains personally liable for their own wrongful acts. The LLP combines partnership tax flexibility with corporate-style liability protection, and is most often used by law firms, accounting firms, architects, and consulting practices.\n\nFormation requires filing a registration with the state (in the US) or with Companies House (in the UK), maintaining mandatory professional liability insurance in many jurisdictions, and keeping the LLP designator in the legal name. There is no minimum capital. Profits flow through to partners on a Schedule K-1 (US) or as self-assessment income (UK).\n\nGovernance is set by the partnership agreement, which typically uses an executive committee or managing partner rather than a board. UK LLPs are bodies corporate with separate legal personality and Companies House filing duties similar to companies. US LLPs vary widely by state, with some restricting the form to licensed professionals only.
When you'll encounter it
You will see LLPs on the letterhead of large law and accounting firms, including the Big Four. Founders of professional services boutiques often choose LLP status to protect each partner from a colleague's malpractice claim, while preserving partnership-style profit splits. UK freelancers occasionally use LLPs to allow two or more individuals to share a business with limited liability and pass-through tax. LLPs are not used for VC-backed startups.
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FAQ
How is an LLP different from a regular partnership?
In a general partnership every partner is jointly and severally liable for the firm's debts and for partner misconduct. In an LLP, statutory protection means a partner is liable only for their own actions and the firm's capital, not for another partner's malpractice judgment. This shift transformed how large professional services firms manage litigation risk during the 1990s.
Can any business use an LLP?
It depends on jurisdiction. UK LLPs are open to any lawful business and are often used by consultants and family investment vehicles. In the US, several states (including California and New York) restrict LLPs to specific licensed professions such as law, accounting, architecture, and engineering. Outside those states, an LLC or PLLC fills the same role.
How are UK LLP profits taxed?
A UK LLP is tax-transparent. Members are taxed individually on their share of profits through self-assessment, paying income tax and Class 4 National Insurance. The LLP itself files an annual partnership return and accounts at Companies House. Salaried members under ITTOIA section 863A may instead be taxed as employees if they fail certain conditions.
References
- UK Government - Set up a limited liability partnership https://www.gov.uk/guidance/set-up-and-run-a-limited-liability-partnership-llp
- Wikipedia - Limited liability partnership https://en.wikipedia.org/wiki/Limited_liability_partnership