CHAPTER 5 LIMITED LIABILITY PARTNERSHIPS AND LIMITED LIABILITY LIMITED PARTNERSHIPS © 2013 Delmar Cengage Learning

Introduction to Limited Liability Partnerships First LLP statutes in the United States were adopted in the early 1990s. LLPs were conceived to limit the personal liability of professionals who have traditionally done business as partnerships. © 2013 Delmar Cengage Learning

Law Governing Limited Liability Partnerships STATE STATUTE PROVISIONS GOVERNING LIMITED LIABILITY PARTNERSHIPS The nature & extent of the personal liability of the partners Voting requirements to elect limited liability partnership status Requirements for filing a statement of qualification to become a limited liability partnership The annual reporting requirements for limited liability partnerships Liability insurance or segregated funds requirements (in certain states) © 2013 Delmar Cengage Learning

Limitations on Personal Liability PARTIAL SHIELD STATUTES FULL SHIELD STATUTES Partners do not have personal liability for partnership obligations arising from the wrongdoing of other partners; however, they remain personally liable for all other partnership obligations. Partners are not personally liable, solely by reason of being a partner, for any obligation of the partnership incurred while the partnership is an LLP. Obligations of the partnership belong solely to the partnership. Partners usually remain liable for obligations arising in whole or in part due to their own negligence, wrongful acts, errors, or omissions. © 2013 Delmar Cengage Learning

Formation and Operation of the Limited Liability Partnership Voting Partners must vote to adopt limited liability partnership status pursuant to state statutes. Annual reporting requirements Most states require limited liability partnerships to file annual reports to maintain their good standing and their limited liability status. © 2013 Delmar Cengage Learning

Formation and Operation of the Limited Liability Partnership STATEMENT OF QUALIFICATION A statement of qualification must be filed, including: Partnership name Partnership address Partnership agent (if required) Statement that the partnership elects limited liability limited partnership status Deferred effective date (if any) © 2013 Delmar Cengage Learning

Formation and Operation of the Limited Liability Partnership LIMITED LIABILITY PARTNERSHIP AGREEMENT Very similar to partnership agreement for general partnership More detail concerning partner liability © 2013 Delmar Cengage Learning

© 2013 Delmar Cengage Learning Advantages & Disadvantages of Doing Business as a Limited Liability Partnership ADVANTAGES DISADVANTAGES Limited liability for all partners Flow-through income tax benefits Transferability of partnership interest Business continuity Diversified capital resources Personal liability for certain obligations Subject to state income taxation in some states Formalities and regulatory & reporting requirements Legal and organizational expense © 2013 Delmar Cengage Learning

Introduction to Limited Liability Limited Partnerships As of late 2011, over half of the states have statutes for limited liability limited partnerships. Laws governing limited liability limited partnerships State limited partnership act or state limited liability partnership act Limited liability limited partnership agreement © 2013 Delmar Cengage Learning

© 2013 Delmar Cengage Learning Partner Liability PARTNER LIABILITY Personal liability for general partners may be limited in the LLLP agreement to the extent permitted by law. General partners of a limited liability limited partnership are usually granted the same limited liability protection as limited partners in their state. © 2013 Delmar Cengage Learning

Limited Partner Liability Personal liability for limited partners may be limited in the LLLP agreement to the extent permitted by law. State laws concerning liability for limited partners of LLLPs may be either full shield or partial shield. © 2013 Delmar Cengage Learning

Formation and Operation of the Limited Liability Limited Partnership LIMITED LIABILITY LIMITED PARTNERSHIP ELECTION AND FORMATION Limited partnerships elect to become limited liability limited partnerships by vote of the partners and filing proper document with state authority. In states that follow the ULPA (2001), the limited partnership may indicate in its certificate of limited partnership whether it opts for limited liability limited partnership status. © 2013 Delmar Cengage Learning

VOTING AND ANNUAL REPORTING REQUIREMENTS Formation and Operation of the Limited Liability Limited Partnership VOTING AND ANNUAL REPORTING REQUIREMENTS Voting requirements to elect LLLP status are set by state statute. Generally subject to the same annual reporting requirements as limited partnerships © 2013 Delmar Cengage Learning

Limited liability limited partnership Formation and Operation of the Limited Liability Limited Partnership Limited liability limited partnership Similar to agreement of limited partnership Includes additional language concerning limited liability of the partners Foreign limited liability limited partnerships The LLLP must file a statement of foreign qualification with the designated state official of any foreign state in which it transacts business. © 2013 Delmar Cengage Learning

© 2013 Delmar Cengage Learning Advantages and Disadvantages of Doing Business as a Limited Liability Limited Partnership ADVANTAGES DISADVANTAGES Limited liability for all partners, including general partners Organization and management formalities to maintain limited liability status © 2013 Delmar Cengage Learning

TASKS PERFORMED BY PARALEGALS WORKING WITH LLPS AND LLLPS The Paralegal’s Role TASKS PERFORMED BY PARALEGALS WORKING WITH LLPS AND LLLPS Research state statutes to determine requirements for forming an LLP or an LLLP Draft documentation evidencing the vote of partners to elect limited liability status Draft statements of qualification or certificate of limited partnership Draft LLP or LLLP agreements © 2013 Delmar Cengage Learning