Definition: A limited liability partnership or LLP is a form of partnership where an individual partner is not liable for the malpractice of another partner in the company. This form of company is most often found in medical practices, law offices, or accounting firms where liability is a big issue. This protects innocent partners from other partners performing services negligently.
What Does LLP Mean?
Think about it in terms of a medical doctors’ office. Assume there are three doctors; Tom, Dick, and Harry; who join together to form a practice. A few years after the partnership is formed, one of the doctors, Tom, is negligent in performing a routine surgery and critically injures the patient. Obviously, the patient has the right to sue the practice for malpractice.
The LLP, however, protects the other Dick and Harry from being sued because they didn’t perform the negligently perform the surgery. Dick and Harry have limited liabilityfrom Tom’s actions. This only makes sense. Why should they be liable for something they didn’t do? They shouldn’t. None of the partners should be responsible for each other’s actions. This is the essence of the limited liability partnership. It helps protect professionals, so they are only liable for their own actions.
Even though the partners are treated as separate entities as far as malpractice goes, most states do hold all partners in the company liable for the partnership debts, however. This is the only key difference between a LLP and general partnership. Both are accounted for in the same way and both are taxed in similar fashions.