Limited Liability Partnerships (LLPs)

Definition

A limited liability partnership is a state-law general partnership that has registered with the state so that its partners are not personally liable for certain partnership obligations, typically other partners' malpractice and, in many states, partnership debts generally; professional firms such as law and accounting firms commonly use it. No federal law creates it; for federal tax purposes it is taxed as a partnership by default,^[3] meaning the firm pays no income tax and each partner is taxed on a share of its income.^[2]

Federal law

Formed under state law. No Act of Congress creates it; the federal laws below apply to it as described.

1. Internal Revenue Code of 1954, Pub. L. 83-591, ch. 736, § 7701, 68A Stat. 911. Defines "partnership" for federal tax purposes (26 U.S.C. § 7701(a)(2)); does not create LLPs. Official text: govinfo.gov, U.S. Government Publishing Office.
2. Internal Revenue Code of 1954, Pub. L. 83-591, ch. 736, § 701, 68A Stat. 3, 239. Provides that a partnership is not itself subject to income tax; partners are taxed individually (26 U.S.C. § 701). Official text: govinfo.gov, U.S. Government Publishing Office.

Federal regulations

Rules issued by federal agencies under the laws above.

3. Classification of certain business entities, 26 CFR 301.7701-3 (Internal Revenue Service (Department of the Treasury)). Default classification of a domestic eligible entity with two or more members as a partnership. Official text: govinfo.gov, U.S. Government Publishing Office.