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How Does an LLP (Limited Liability Partnership) Work?

Limited liability partnerships (LLPs) are legal business structures commonly formed by medical practices, law firms, and other licensed partnerships—and for good reason: They assume limited risks and have the potential for great rewards. 

Here’s everything you should know about LLPs in Washington State, including how they work, their pro and cons, and how they differ from other legal business entities:

How Does an LLP Work?


An LLP is a form of general partnership. Like general partnerships, an LLP must consist of at least two partners. Unlike general partnerships, the partners decide the amount of control each has and the amount of proceeds they retain.

LLPs have the flexibility of a limited liability company (LLC). They’re usually member-managed so that they can decide on their management structure. 

Depending on how you draft your partnership agreement, one, some, or all of the partners can be responsible for the company’s day-to-day operations. The same goes for making almost all major decisions for the company. The only decisions they can’t make are those that involve changes to the partnership agreement, which require all partners’ approval. 


The Limited Liability Partnership Agreement


A partnership agreement is a legal document that shares much in common with an LLC’s operating agreement. We cannot stress enough how critical the document is and that you should work with a business law attorney when drafting one.

Your partnership agreement outlines how you’ll run your LLP, including your rules, regulations, and liabilities. It also exists to resolve any legal or financial disputes. Without it, the courts may make critical decisions for you, and a judge’s ruling might not be in your, your partners, or your LLP’s best interests.

Your partnership agreement clearly outlines several key elements of your partnership, including:

  • Division of ownership
  • Membership responsibilities
  • Profit distribution
  • Dispute resolution procedures
  • Protocols for partnership selling or dissolution

Before signing, you and all of your partners should agree on and clearly understand how your partnership agreement works. Once signed, you can make changes when all partners approve of them. 


Protections Provided to LLPs


In an LLP, you are not responsible for any tortious damages other partners commit. 

Every partner has limited personal liability for the debts they may accrue. However, if you enter into a contractual agreement that makes you personally responsible for your LLP’s debts, you can be held accountable, depending on the terms. 

LLPs also offer partners limited liability when they are actively involved in managing the business. Suppose a court finds that partners are improperly distributing funds or are trying to defraud creditors. In that case, they may disregard an LLP’s liability protection and rule that they must return funds to the creditors. The criteria for such actions are determined case-by-case based on state law. 


LLP Benefits


Here are a few reasons why licensed professionals and other business owners prefer LLPs:


Reduced Liability Exposure


If one of your partners fails to exercise reasonable care in their professional duties or adequately oversee their employees, you won’t be liable for any injuries or expenses. You’re also not responsible for any debts another partner owes or any wrongdoings they commit. 

For example, you and your partner, Eric, run a private practice. Eric neglects to read a patient’s chart and prescribes that patient something that contains an ingredient to which they’re highly allergic, causing them to spend a few days in the hospital. Eric is personally liable. You are not. 


Experience Economies of Scale


Along with limited personal liability protection, the LLP framework enables professionals to minimize costs associated with expenses like staff, rent, and equipment. Being part of a more prominent organization also gives you access to vital business elements that may currently be beyond your reach, like lead generation strategies, marketing outreach, and enhanced branding. 


Flexible Partner Roles


LLPs give you operational flexibility. You and your partners can hire someone to manage day-to-day operations or take that task on yourselves. You can also divide responsibilities based on your skill sets and personal interests. Whatever you decide, clearly outline it in your partnership agreement. 


LLPs are Easy to Form


In Washington State, any business with two or more partners can become an LLP. All you have to do is meet the basic requirements outlined in the Limited Liability Partnership Registration form and pay the filing fee. 

These requirements include:

  • The name of your LLP (which must contain the words “Limited Liability Partnership” or an abbreviation thereof)
  • Effective date of formation
  • Principal place of business address
  • Number of partners in your LLC and their names, addresses, and signatures
  • Your registered agent’s name and address
  • A brief statement about what your partnership does

You should also include your limited liability partnership agreement.


Enjoy Pass-Through Taxation


Corporations experience “double taxation.” LLPs do not. 

Corporations pay taxes on their profits. Then, their shareholders pay taxes on the distributions they receive. 

LLPs are “pass-through entities,” meaning federal tax laws don’t tax them as separate entities. The LLP itself doesn’t pay taxes on its profits. Instead, profits and losses are “passed through” to the partners, who then report their shares on their individual tax returns. The Tax Cuts and Jobs Act also allows pass-through entities to deduct up to 20% of their business income from their federal taxes. 


LLP Drawbacks


No legal business structure is perfect. Here’s what you should know about LLPs:


Limited Liability Has Limits


Liability isn’t absolute. You’re responsible for your own negligence and wrongdoings. If you don’t exercise reasonable care or fail to oversee your employees adequately, you may be personally liable for any costs or injuries. 

If you enter into personal guarantees or other contractual agreements stating that you’re personally responsible for the debts your LLPs accrue, you’re liable for those, too. 


State Laws Vary


In Washington State, any business with two or more partners can become an LLP. Other states have different laws; some may not recognize LLPs as valid legal business entities. Do your research if you intend to move your principal place of business because you may find yourself trying to abide by multiple, sometimes conflicting, sets of regulations. 


LLP vs LLC: What’s the Difference?


LLPs and LLCs share many similarities. Here’s where they differ:

Business Structure:

  • LLP owners are called “partners,” and there must be two or more.  
  • LLC owners are called “members.” LLCs can consist of one or more members

Liability Protection:

  • LLP partners usually aren’t personally liable for the overall partnership’s obligations and debts. However, there are exceptions, like professional negligence or malpractice. 
  • LLC members aren’t personally liable for the business’s obligations and debts unless they fail to maintain the LLC’s separate legal stature or in cases of personal wrongdoing.


  • LLPs are usually taxed as pass-through entities. 
  • LLCs can be taxed as sole proprietorships, partnerships, or corporations, depending on the number of members and their preferred taxation treatment. 

Legal Status:

  • Not every state recognizes LLPs as legal business entities. Some states have specific, sometimes conflicting regulations. 
  • Every state recognizes LLCs as legal business entities.


LLPs vs General Partnerships and Limited Partnerships


There’s more than one way to form a partnership. Here’s how general and limited partnerships (LPs) compare to LLPs.


General Partnerships


General partnerships are business structures in which two or more partners form a business together. Each partner shares profits, losses, responsibilities, and liabilities in a general partnership.

The main difference between general partnerships and LPs and LLPs is their unlimited personal liability. Each partner is personally liable for the business’s debts and responsibilities. You and your partners are individually and collectively liable. If one of your partners is negligent in paying their share of the debt, it falls to everyone else to pay for it. Otherwise, creditors can go after everyone’s personal assets, not just the assets of the negligent partner. 


Limited Partnerships


Limited partnerships consist of one or more general partners and one or more limited partners. General partners make decisions, manage the business, and are personally liable for the partnership’s debts and responsibilities. 

Limited partners contribute capital to the partnership but aren’t involved in the decision-making or management processes. They also have limited liability, so they’re only personally liable for the amount they invest in the business. Unlike general partners, their personal assets are protected. 


Should You Form an LLP?


LLPs are typically the best legal business structures for you if you need a license to do business and your state recognizes them as business entities. You’ll enjoy LLPs’ many benefits, like pass-through taxation and economies of scale, without the downsides of other business structures, such as double taxation and unlimited liability. 

Consult with a business law attorney before you start to make sure it’s the right decision for you. Your attorney can guide you through the LLP formation process and draft a legally sound partnership agreement that clearly outlines each partner’s roles, responsibilities, and liabilities. By having a solid legal foundation for your business, you can grow your partnership with confidence and peace of mind.