LLP STANDS FOR LIMITED liability partnership. As the name suggests, an LLP provides its members with a degree of liability protection, shielding them and their personal assets.
An LLP is an entity created by state law, usually used for professional practices, such as legal, accounting or architecture firms, says Michael J. Greenwald, partner and Business Entity Tax Practice leader at Friedman LLP, a New York-based business consulting firm. Different states provide different degrees of liability protection to members.
“A partner of a registered limited liability partnership is generally not liable, even by way of indemnification, for any debts, obligations or liabilities of the partnership itself or of its other partners,” says Alan Goldenberg, tax principal at Anchin, a New York accounting firm. “Accordingly, individual partners are themselves not liable for other partners’ misconduct or debt and also are not individually liable for the partnership’s obligations or liabilities.”
Kristin Roberts, assistant program chair of accounting for Post University, identifies two types of LLPs: operating LLPs, where there is a business or service being provided by the LLP, and family or investment LLPs, where there is no product or service. In the latter case, “the LLP is used as an investment tool,” she says. “The partners contribute cash and/or marketable securities to the LLP, and in turn the LLP invests those assets further, which could be in marketable securities and/or publicly traded partnerships,” or PTPs.
In either case, the LLP must be defined by an operating agreement, she says.
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