A limited liability partnership (LLP) combines partnership taxation and management with a liability shield: no partner is personally responsible for the partnership's debts or for another partner's malpractice merely for being a partner. It is the structure of choice for law firms, accounting firms, architects, and medical groups.
Registering the LLP with the state creates the shield; this agreement creates everything else: who contributed what, how profits split, how decisions are made, and how partners leave without breaking the firm.
LLP vs general partnership vs LLC
| General partnership | LLP | LLC | |
|---|---|---|---|
| Personal liability | Unlimited, joint and several | Shielded, except own acts | Shielded, except own acts |
| State filing | None required | Registration plus annual renewal | Articles plus annual report |
| Typical users | Informal co-ventures | Licensed professionals | Most small businesses |
| Governing document | Partnership agreement | LLP partnership agreement | Operating agreement |
In several states, including California, New York, and Nevada, the LLP form is reserved for licensed professions such as law, accounting, and architecture. Other states open LLPs to any business. If the LLP route is closed to you, an LLC with an operating agreement achieves a similar shield; if you never register at all, you have a general partnership and no shield.
What the liability shield does and does not cover
- Covered: partnership debts, leases, and the malpractice of other partners; a partner's personal assets are not on the line for those.
- Not covered: a partner's own negligence or misconduct, and anything the partner personally guarantees, like a bank loan or office lease.
- Condition: the shield exists only while the LLP registration is current; missing an annual renewal can revive personal liability.
- Insurance: several states require LLPs in licensed professions to carry minimum professional liability coverage as a condition of the shield.
Keep the registration alive
The LLP shield is statutory, not contractual: it flows from the state registration, not from this agreement. Calendar the annual renewal, and confirm your state permits LLPs for your profession before relying on the form.
Partner exits: the clause you will actually use
Most partnerships do not end in dissolution; they end one partner at a time. Without written exit mechanics, a withdrawal can trigger statutory default rules that force a buyout on terms nobody chose, or litigation over the value of the departing partner's stake. This agreement sets a notice period, values the exit at the partner's capital account adjusted for profits through the departure date, spreads payment over up to 12 months to protect the firm's cash, and confirms the partnership continues among the remaining partners. Professional firms with client relationships should pair these mechanics with non-solicitation terms for departing partners.
Review the split when roles change
Equal profit shares age badly when workloads diverge. Revisit shares at admission of each new partner and at regular intervals; under this agreement, changes are amendments adopted under the decision rule.
Frequently asked questions
Does an LLP agreement have to be filed with the state?
No. The LLP registration (often called a statement of qualification) is filed with the state; the partnership agreement stays private among the partners. Both are needed: the filing creates the shield, the agreement governs the relationship.
Who can form an LLP?
It depends on the state. Some states, including California and New York, limit LLPs to licensed professions like law, accounting, and architecture. Many others allow any lawful business. Check your state's LLP statute before registering.
How is an LLP taxed?
Like a partnership: the LLP files an information return (Form 1065) and profits pass through to the partners, who pay tax on their shares whether or not distributed. The LLP form does not change federal tax treatment compared with a general partnership.
Are partners liable for another partner's malpractice?
No, that is the point of the LLP: a partner is not personally liable for another partner's negligence solely by being a partner. Each partner remains fully responsible for their own professional acts, and the firm's assets remain exposed for all claims.
What happens if a partner leaves or dies?
Under this agreement the partnership continues; the departing partner or their estate receives the balance of their capital account adjusted through the departure date, paid over up to 12 months. Without such a clause, state default rules decide, often less predictably.