limited liability partnership (LLP)

Limited liability partnership (LLP) is a type of general partnership where every partner has a limited personal liability for the debts of the partnership. Partners will not be liable for the tortious damages of other partners but potentially for the contractual debts depending on the state. LLPs are popular for larger partnerships and especially for professionals, and some states only allow professionals to use the LLP format. Like with general partnerships, an LLP must have two or more partners, but an LLP has flexibility in structuring how the amount of control and proceeds each partner retains. Almost all decisions in an LLP can be allocated to certain partners except those involved in changing the partnership agreement that require approval of all partners.

Unlike with limited partnerships, LLPs allow limited liability even if partners remain involved in the management of the business. However, where a court finds the partners attempted to undermine creditors such as with improper distributions, the court may pierce the veil of limited liability to clawback funds for creditors, but the actions that would trigger such treatment require a case-by-case analysis with the relevant state laws. Compare with limited partnership and limited liability company (LLC).

[Last updated in March of 2022 by the Wex Definitions Team]