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©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
CHAPTER 5
Limited Liability Partnerships and Limited Liability
Limited Partnerships
THEME
Chapter 5 introduces students to limited liability
partnerships and limited liability limited partner-
ships, two of the newer limited liability entities
available in most states, focusing on the charac-
teristics of these two entities and how they differ
from the general partnership and the limited
partnership. Links to the partnership and limited
partnership acts of most states, along with cita-
tions to the limited liability partnership and lim-
ited liability limited partnership provisions with-
in those acts, can be found on the CourseMate
website that accompanies this text at
http://www.cengage brain.com.
CHAPTER GOAL
The goal of this chapter is for students to be-
come familiar with the following terms and
topics concerning limited liability partner-
ships and limited liability limited
partnerships:
• Limited liability partnership and limited lia-
bility limited partnership
• Differences and unique characteristics be-
tween general partnerships, limited liability
partnerships, limited partnerships, and lim-
ited liability limited partnerships
• State requirements for forming each of the
limited liability entities
• The nature and extent of the limited liability
afforded to all partners of a limited liability
partnership and limited liability limited part-
nership in states that have adopted either full
shield or partial shield statutes
• State requirements for limited liability
partnerships and limited liability limited
partnerships
• Advantages and disadvantages of doing
business as a limited liability partnership
compared to other forms of business organi-
zation
• Advantages and disadvantages of doing
business as a limited liability limited part-
nership compared to other forms of business
organization
SUGGESTED APPROACH
The law concerning limited liability partnerships
and limited liability limited partnerships varies
between the states, perhaps more than with any
of the other forms of business organization dis-
cussed in this text. It will be important for dis-
cussions here to focus on the law of the state
where students are located. Discussions may
focus on the amount of protection from personal
liability afforded to partners of these two types
of limited liability entities.
LECTURE NOTES
Introduction to Limited Liability
Partnerships
1. In the mid-1990s several states introduced
legislation to allow the formation of the
limited liability partnership.
2. Every state in the United States has now
adopted statutes permitting the formation
of limited liability partnerships, although
the statutes vary significantly from state to
state.
3. Between 1998 and 2005, the number of
limited liability partnerships in the United
States increased dramatically.
4. Special provisions within the partnership
act of the state in which the limited liability
partnership is formed govern limited liabil-
ity partnerships.
5. Limited liability partnership statute provi-
sions generally address the following:
CHAPTER 5 Limited Liability Partnerships and Limited Liability Limited Partnerships 33
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
• The nature and extent of the protection
from personal liability afforded to the
partners
• Voting requirements to elect limited li-
ability partnership status
• Requirements for filing a statement of
qualification to become a limited liabil-
ity partnership
• The annual reporting requirements for
limited liability partnerships
• Liability insurance or segregated funds
requirements (in certain states)
6. The partners of the limited liability part-
nership are also governed by their part-
nership agreements, so long as the terms
of that agreement are not contrary to ap-
plicable law.
Limitations on Personal Liability
7. Partners of limited liability partnerships in
states with partial shield statutes are shield-
ed from personal liability for partnership
obligations arising from the wrongdoing of
other partners, but they remain personally
liable for all other partnership obligations.
8. Partners of limited liability partnerships in
states with full shield statutes are not per-
sonally liable, solely by reason of being a
partner, for any obligation of the partner-
ship incurred while the partnership is a lim-
ited liability partnership. Partners usually
remain liable for obligations arising in
whole or in part due to their own negli-
gence, wrongful acts, errors, or omissions.
9. The Uniform Partnership Act (1997) and a
majority of the states have adopted the full
shield approach for limited liability
partnerships.
10. Several states require that limited liability
partnerships carry liability insurance cover-
ing the partnership for errors, omissions,
negligence, wrongful acts, misconduct, and
malpractice to ensure that third parties who
are wronged by the limited liability partner-
ship will have some type of recourse if the
partnership has limited assets. In lieu of an
insurance policy, some states require the
limited liability partnership to maintain sep-
arate funds in an amount required by law in
a trust or escrow to provide for the payment
of partnership obligations.
Formation and Operation of the Limited Li-
ability Partnership
11. Limited liability partnerships are formed
pursuant to state statutes, usually by an
election made by a general partnership.
12. State statutes generally require that the
same number of partners required to ap-
prove an amendment to the partnership
agreement must approve the limited liabil-
ity partnership election.
13. The general partnership makes an election
to become a limited liability partnership by
filing a statement of qualification or similar
document with the secretary of state.
14. The limited liability partnership is gov-
erned internally by a partnership agreement
similar to that of a general partnership. The
limited liability partnership agreement
should include language indicating that the
partnership is a limited liability partnership,
and outlining the limits on personal liability
afforded to the partners.
15. The limited liability partnership must quali-
fy to do business in any state in which it
does business, other than its state of domi-
cile.
16. The limited liability partnership must be
dissolved pursuant to the partnership act of
the state of domicile in the same manner in
which general partnerships are dissolved.
Advantages and Disadvantages of Doing
Business as a Limited Liability Partnership
17. The limited liability partnership offers all
the advantages to doing business as a gen-
eral partnership, including management
flexibility, partnership taxation, and a di-
versified pool of capital resources. In addi-
tion, the limited liability partnership offers
34 PART I Guide for Instructors and Answers to Chapter Review Questions
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
the benefit of providing at least a degree of
protection from personal liability for all
partners.
18. The disadvantages to doing business as a
limited liability partnership are similar to
those of the general partnership, including a
lack of business continuity, difficulty in
transferring partnership interests, and a lim-
ited capacity to raise capital for the partner-
ship business. In addition, limited liability
partnerships are subject to certain formali-
ties before beginning business. A lack of
uniformity in state statutes concerning lim-
ited liability partnerships may also be a dis-
advantage to partnerships that transact
business in several states.
Introduction to Limited Liability Limited
Partnerships
19. As of late 2011, more than half the states
had adopted statutes approving the for-
mation of limited liability limited
partnerships.
20. Limited liability limited partnerships are
governed by the statutes of the state of the
limited partnership’s domicile. Most states
that recognize the limited liability limited
partnership provide for that entity in their
limited partnership acts. The Uniform Lim-
ited Partnership Act (2001) makes it rela-
tively simple for any limited partnership to
adopt limited liability limited partnership
status.
Partner Liability
21. As with limited partners, general partners
of limited liability limited partnerships are
protected from personal liability for the
debts and obligations of the partnership to
the extent provided by the limited liability
limited partnership agreement and state
statute.
22. In most states, no partner of a limited liabil-
ity limited partnership is personally liable
for debts and obligations of the partnership
solely by reason of being a partner. Both
general and limited partners usually remain
liable for obligations arising in whole or in
part due to their own negligence, wrongful
acts, errors, or omissions. It is important to
consult state statutes concerning the degree
of limited liability protection available to
partners.
23. In states that follow the Uniform Limited
Partnership Act (2001), limited partners
have no personal liability for the debts of
the entity, regardless of whether the entity
is a limited partnership or limited liability
limited partnership, and regardless of
whether the limited partner participates in
the management of the limited partnership
business.
Formation and Operation of the Limited
Liability Limited Partnership
24. In states that provide for the formation of
limited liability limited partnerships, that
entity is usually formed when a limited
partnership files an election to become a
limited liability limited partnership with the
secretary of state or other state authority.
25. The general and limited partners must ap-
prove the limited liability limited partner-
ship election by a vote pursuant to state
statute.
26. The limited liability limited partnership
agreement is typically no different than the
agreement for limited partnerships, except
that it includes added language to clearly
indicate that it is a limited liability limited
partnership and to further define the limited
liability for partners.
Advantages and Disadvantages of Doing
Business as a Limited Liability Limited
Partnership
27. The advantages of doing business as a lim-
ited liability limited partnership are much
the same as those of a limited partnership.
Limited liability limited partnerships offer
income tax benefits, relative transferability
of partnership interest, a relatively high de
CHAPTER 5 Limited Liability Partnerships and Limited Liability Limited Partnerships 35
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
gree of business continuity, and diversified
capital resources. Limited liability limited
partnerships offer the added advantage of
limited liability for both general and lim-
ited partners.
28. Disadvantages to doing business as a lim-
ited liability limited partnership include the
formalities and regulatory and reporting re-
quirements as well as legal and organiza-
tional expenses. In addition, the fact that
the limited liability limited partnership is
not recognized in all states, and that state
law is not uniform for this entity, may be a
disadvantage for some business owners.
The Paralegal’s Role
29. Paralegals who work with limited liability
partnerships and limited liability limited
partnerships are often responsible for con-
ducting research, assisting with forming the
appropriate entity, and tracking ongoing
formalities.
Paralegals also assist with the filings re-
quired at the secretary of state’s office to
form LLPs and LLLPs and to maintain
their good standing.
CASE BRIEFS
Kus v. Irving, et al., 736 A.2d 946 (Conn. 1999)
Purpose: This case, in which two partners of a
limited liability partnership are found to be not
responsible for damages caused by the wrongful
act of a third partner, illustrates the main ad-
vantage to doing business as a limited liability
partnership.
Cause of Action: Negligence, wrongful acts,
and misconduct
Facts: This case involves a law firm that is op-
erating as a limited liability partnership. The
plaintiff, Margaret Kus, had hired one of the
partners of the law firm, Charles J. Irving, to
collect on a life insurance policy of her late hus-
band. Kus agreed to pay Irving a fee of 25 per-
any proceeds after suit was brought. According
to Kus, Irving received the $400,000 death ben-
efit on the life insurance policy before filing suit,
but proceeded to file a suit anyway to take a
higher fee. The plaintiff claimed that the de-
fendants Dubicki and Camasar, Irving’s part-
ners, were also guilty of negligence, wrongful
acts, and misconduct. Dubicki and Camasar
filed this motion for summary judgment dis-
missing them from the lawsuit, indicating that
they had no personal knowledge of the case or
the dealings between Irving and Kus until after
the matter was concluded. Irving and Kus
claimed that as partners of a limited liability
partnership, they were protected by the limited
liability partnership laws from any personal lia-
bility for any actions against their partner, mere-
ly because they were partners.
Issue: Can partners of a limited liability partner-
ship law firm be held liable for the negligence,
wrongful acts, or misconduct of a partner when
they have no personal knowledge or involve-
ment in the matter from which the misconduct
arises?
Holding: No, except where the alleged wrong-
doer is under the partners’ “direct supervision or
control,” the partners of a law firm that is a lim-
ited liability partnership may not be held per-
sonally liable for the actions of the alleged
wrongdoer.
Reasoning: Since the two defendants shared no
benefit, did not have direct supervision or con-
trol over Irving, and did not know about the
matter until after the funds were distributed,
they were protected from personal liability by
the governing limited liability partnership
statutes.
REVIEW QUESTIONS
1. How do limited liability partnerships differ
from general partnerships?
Limited liability partnerships offer their
36 PART I Guide for Instructors and Answers to Chapter Review Questions
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
2. Where in the state statutes is law governing
limited liability partnerships generally
found?
3. In states that follow the UPA 1997, what
information must be included in a state-
ment of qualification to elect limited liabil-
ity partnership statutes?
• The street address of the partner-
ship’s chief executive office and, if
• The name and street address of the
• A statement that the partnership
Some states require limited liability
partnerships to maintain liability insur-
ance or segregated funds to ensure that
third parties who are wronged by the
5. What is the difference between partial
shield statutes and full shield statutes?
Partial shield statutes protect partners
from personal liability only from debts
and obligations arising from the miscon-
duct or wrongdoing of their partners.
Full shield statutes protect partners
from personal liability for all debts and
obligations of the partnership, except
those caused by their own misconduct or
wrongdoing.
6. If a partnership formed in a partial shield
ment of funds by one partner, who will be
responsible for paying the partnership debt
once the partnership assets have been ex-
hausted?
7. Why might a limited liability limited part-
not recognized in all states, and there is a
8. In states that follow the ULPA 2001, how
is an election made to form a limited liabil-
nership certificate that is filed with the
SUGGESTED ANSWERS TO
PRACTICAL PROBLEMS
1. The first Practical Problem in this chapter
students should be encouraged to find and
review the statute itself, noting the exact
section and subsection that deal with part-
nership liability, and any unique provisions
contained therein.
2. The second Practical Problem in this chap-
ter asks students to determine if the statutes
of their home state provide for the for-
mation of limited liability limited partner-
CHAPTER 5 Limited Liability Partnerships and Limited Liability Limited Partnerships 37
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
ships, and provide the citation for any per-
tinent statute they find. Again, Exhibit 5-11
of the text may be used as a starting point,
but students should be encouraged to
search the statutes of their home state for
up-to-date information.
EXERCISE IN CRITICAL
THINKING
The Exercise in Critical Thinking for this chap-
ter asks students to consider the advisability of
operating a law firm as a limited liability
partnership.
Exercise:
Law firms have traditionally operat-
ed as general partnerships. Why
might a limited liability partnership
be a good choice of entity for a law
firm partnership? What are some
possible drawbacks?
SUGGESTIONS AND SAMPLE
DOCUMENTS FOR THE WORK-
PLACE SCENARIO
In this exercise, students are asked to prepare a
statement of qualification or similar document to
elect limited liability status for the fictional part-
nership they formed in Chapter 3 of the text.
Students may use forms downloaded from the
companion website to this text, from the secre-
tary of state’s website in their state, or they can
prepare their own documents based on the part-
nership act adopted in their home state. Appen-
dix F is a sample statement of qualification that
follows the provisions of the Uniform
Partnership Act, along with a sample cover
letter.
Students completing this exercise
should learn what documentation is needed to
elect limited liability partnership status, where
the documentation is filed, and whether any
other formalities are required.
