In the next several weeks, This Week in Real Estate will examine Limited Liability Partnerships (LLP) and Limited Liability Companies (LLC).; they’re history and similarities and differences.
A limited liability partnership (LLP) is essentially a general partnership with the addition of limited liability for one or more partners. A general partnership is formed whenever two or more people do business together and does not require any legal filings. To create an LLP, typically, you must file additional paperwork with the state where the LLP is domiciled.
The LLP first appeared in Texas in 1991 with the purpose of shielding general partners of general partnerships (primarily law and accounting firms) from personal liability for negligence-based torts committed by other partners. Partners continued to be liable for the torts committed by those whom they supervised or directed, and the LLP was required to carry at least $100,000 in liability insurance to cover tortious acts. Not all professional firms, especially those doing business in multiple states, can legally operate in each such state as a professional corporation, limited liability company, or general business corporation.
By 1993, the LLP gained popularity with adoptions in various forms by Delaware, the District of Columbia, Louisiana, and North Carolina. Delaware had the broadest and most innovative LLP statute at this time. Delaware adopted several changes to the original Texas version, including the following: greater protection from wrongful acts and omissions of other partners, imposing supervisory liability for only “direct” supervision, requiring minimum liability insurance of $1 million, granting express authorization for LLPs to engage in activities outside of the state, deferring to the state Supreme Court for a determination of law firm eligibility for limited liability status, and limiting the maximum registration fees to the amount corporations paid in franchise taxes.
In 1994, Minnesota and New York adopted “full shield” LLP statutes, which included enhanced limited liability parallel to corporations by protecting against vicarious liability for all partnership liabilities regardless of their nature. Delaware amended its LLP act in 1994 to protect partners from contract claims and specifying that partners are not liable for contributions to the partnership or indemnification to other partners due to liabilities of the partnership if the partner would not otherwise be liable under the LLP statute. A partner under the Delaware act was still liable for that partner’s own actions and for the actions of others that the partner supervised.
After 1994, the demand began for statutes that extended New York’s broad liability shield to all partnerships, not merely professional firms, without potential partner liability for receipt of distributions. The LLP was insolvent as under the Minnesota act. Georgia became the first jurisdiction to enact such a statute in 1995. Moreover, the American Bar Association (ABA) advocated such a provision in its Prototype LLC Act.
Almost all states now have full shield LLP statutes protecting against liability in both tort and contract claims, although professionals always personally remain responsible for their own individual malpractice.
Next week, we will examine the genesis of the LLC.
ABOUT JAMES LANDON
Jim Landon has practiced real estate law since 2002 and has been involved in real estate investment and construction for most of his life. Jim’s practice focuses on real estate transactions and land use.
Jim represents individuals and privately and publicly held companies in the purchase, sale, leasing, financing, and development of real property. He also represents title insurance companies on commercial purchases and refinancing transactions, as well as providing third-party legal opinions regarding Delaware law related to Delaware entities.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing, full-service law firms in the United States. With over 230 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well-positioned to meet dynamic businesses’ needs and the people who own and operate them. Our offices serve individual and corporate clients in South Carolina, North Carolina, Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York.
At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value, and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and efficiently achieving their goals. Offit Kurman represents its clients the better way.
Whatever and wherever your industry, Offit Kurman is the better way to protect your business, preserve your family’s wealth, and resolve your most challenging legal conflicts. At Offit Kurman, we distinguish ourselves by the quality and breadth of our legal services — as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners also gives clients access to experienced counsel in every area of the law.
Subscribe and follow us on our Blog, Facebook, Twitter, Instagram, YouTube, and LinkedIn pages. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA |SOUTH CAROLINA | VIRGINIA | WASHINGTON, DC