When two or more people work together in a business, they usually form a partnership. But a regular partnership means each person is personally liable for the company's debts and the mistakes of the other partners. If the company gets sued or goes broke, creditors can reach the partners' personal bank accounts.
An LLP is a way around that risk. Partners pool their money and work together, but none of them are personally liable for the company's debts or for each other's negligence. If the business fails, each partner loses their investment in the company, but not their house.
The catch is structural. An LLP does not exist on its own. It is an election — a choice to register a partnership with the state for special treatment. You must have a general partnership first, then register it as an LLP.
What LLP means for you
Every state defines partnerships in a similar way: two or more people who agree to run a business together and share profits. That creates a problem. In a general partnership, each partner can bind the whole company to a deal, and each partner's personal assets are on the hook for the company's debts and the other partners' mistakes.
An LLP flips this. When you register your partnership with your state as an LLP, the partners are no longer personally liable for:
- The company's debts and obligations
- Another partner's professional negligence or misconduct
Each partner still manages the company and can make decisions, but they are shielded from the consequences. You lose only what you invested.
One rule is absolute. An LLP requires at least two partners. You cannot form a one-person LLP. If you are the only person involved, there is no partnership to register, so you would use an LLC, a corporation, or a sole proprietorship instead.
How LLP is set up
An LLP is not created in the same place as an LLC. You do not incorporate. Instead, you form a general partnership first, then file a registration form with the state to elect LLP status.
The details vary by state, and some states restrict LLPs to certain professions.
Delaware
Delaware allows any business to become an LLP. You file a Statement of Qualification with the Delaware Division of Corporations. The form includes the partnership name, the registered office address, a registered agent, the number of partners, the LLP election, and the effective date.
There is no professional requirement. Any partnership can file.
California
California restricts LLPs to five licensed professions: architecture, public accountancy, engineering, land surveying, and law (Cal. Corp. Code § 16101). Every partner must be a licensed person. If your partnership does not fall into one of those categories, you cannot register as an LLP in California. You would need to form an LLC instead.
Three of the five — architecture, engineering, and land surveying — sit in a provision with an expiration date. The legislature moved that date to January 1, 2034 in AB 1862 (2024). Public accountancy and law have no expiration date.
If you do qualify, you file Form LLP-1 with the California Secretary of State. Filing fees are set administratively and change, so check the Secretary of State's current fee schedule before you file.
Wyoming
Wyoming allows any business to become an LLP, similar to Delaware. You file a statement of registration for a registered limited liability partnership with the Secretary of State. The statute names no professions; it asks for a brief statement of the business the partnership engages in. Check the Secretary of State's current fee schedule for the filing fee, which differs for domestic and foreign partnerships.
🇺🇸 If the IRS counts you as a U.S. person
You can form an LLP following the same steps as anyone else. You and your partner(s) form a general partnership, then register it with your state. Your state may ask about professional qualifications if you operate in California or another state that restricts LLPs to licensed professions.
The IRS treats an LLP much like a general partnership for tax purposes. The company itself does not pay income tax. Instead, each partner reports their share of the profit or loss on their own tax return.
🌏 If it does not
The formation process is identical. Your residency does not change which forms you file or which states allow you to form an LLP.
You will need a registered agent in the state where you register the LLP, and that agent must have a physical office in that state. This is required for all entities, not just LLPs. In Delaware, the agent may not perform the role solely through a virtual office or a mail forwarding service (6 Del. C. § 15-111).
The IRS tax treatment is the same. The partnership does not pay income tax. It files Form 1065 and issues each partner a Schedule K-1, and each partner reports their share of the profit or loss on their own return.
One rule is specific to foreign partners. If the partnership has income that is effectively connected with a U.S. trade or business and that income is allocable to a foreign partner, the partnership must withhold tax on that share under IRC § 1446 and file Forms 8804 and 8805. Form 5472 and a pro forma Form 1120 do not apply here. That pair is for reporting corporations and for foreign-owned single-member LLCs that the IRS disregards, not for partnerships.
LLP vs other entity types
When should you choose an LLP instead of an LLC or a corporation?
| LLP | LLC | General Partnership | S-Corp | |
|---|---|---|---|---|
| Minimum members/partners | 2 | 1 | 2 | 1 |
| Liability shield | Yes | Yes | No | Yes |
| Owner's personal liability | None for the company's debts or another partner's negligence; still liable for their own acts | None | Full | None |
| Non-U.S. owners | Allowed | Allowed | Allowed | A nonresident alien cannot be a shareholder (IRC § 1361(b)(1)(C)); a resident alien can |
| IRS default tax treatment | Partnership (Form 1065) | Disregarded (single-member) or partnership | Partnership (Form 1065) | Pass-through by election (Form 1120-S) |
| Professional requirement | Sometimes (varies by state) | No | No | No |
| State fees | Varies by state | Varies by state | Usually none | Varies by state |
In Delaware, an obligation of the partnership incurred while it is an LLP, whether it arises in contract or in tort, is the obligation of the partnership alone, and a partner is not personally liable for it by reason of being a partner (6 Del. C. § 15-306(c)). The shield is about what the company owes. It is not a shield for what a partner does personally.
Most new businesses use an LLC or a C-corporation, not an LLP. LLPs became common when professional partnerships (law firms, accounting firms) needed liability protection but wanted to preserve partnership tax treatment. If you have two or more partners and do not need a professional credential, an LLC usually works better because it offers the same liability protection with fewer restrictions.
Common mistakes
🇺🇸 If the IRS counts you as a U.S. person
- Trying to form a one-person LLP. You need at least two people. If you are alone, use an LLC.
- Assuming an LLP reduces each partner's tax bill. The IRS taxes the profits the same way it would in a general partnership. The liability protection is the only benefit.
- In California, assuming your business can be an LLP without a professional license. California restricts LLPs to architecture, public accountancy, engineering, land surveying, and law. Other professions and general business must use an LLC.
🌏 If it does not
- Thinking residency matters for LLP formation. It does not. You form an LLP the same way wherever you live.
- Assuming a foreign-owned LLP files Form 5472 with a pro forma Form 1120. That rule is for reporting corporations and for foreign-owned single-member LLCs. A partnership files Form 1065, and if it has effectively connected income allocable to a foreign partner it withholds under IRC § 1446 (Forms 8804 and 8805).
- Overlooking the registered agent requirement. You still need an agent with an office in the state where you register, and that agent must be available during business hours to receive legal papers.
- Confusing LLP with "limited partnership." They are different structures. An LLP is a partnership registered with the state for liability protection. A limited partnership has general partners (liable) and limited partners (not liable). They file different forms.
FAQ
Can I form a single-member LLP?
No. An LLP requires at least two partners. If you are the only person, you cannot form an LLP. Use an LLC instead.
Do I need a professional license to form an LLP?
It depends on the state. Delaware and Wyoming allow any partnership to become an LLP. California allows only five professions: architecture, public accountancy, engineering, land surveying, and law. Check your state's law before filing.
What is the difference between an LLP and a limited partnership?
They are different structures. In a limited partnership, there are general partners (who run the business and are liable) and limited partners (who invest money but do not run the business and are not liable). In an LLP, all partners can run the business, and none are liable for the company's debts or each other's mistakes. They file different registration forms.
Can I form an LLP in any state?
Most states allow LLPs, but the rules vary. Some states, like Delaware and Wyoming, allow any partnership to become an LLP. Others, like California, restrict LLPs to certain professions. Check your state's statutes before filing.
What does the IRS do with an LLP for tax purposes?
The IRS treats an LLP like a general partnership. The company does not pay federal income tax. It files Form 1065 and issues a Schedule K-1 to each partner, and each partner reports their share of the profit or loss on their own tax return. If a foreign partner is allocated income that is effectively connected with a U.S. trade or business, the partnership withholds tax on that share under IRC § 1446 and files Forms 8804 and 8805.
Does the liability protection cover all kinds of lawsuits?
No. An LLP shields partners from the company's debts and from each other's professional negligence. But a partner is still personally liable for their own negligence, their own misconduct, and debts they personally guarantee.
Can I convert my general partnership to an LLP?
Yes. You file the appropriate registration form with your state (like Delaware's Statement of Qualification). You do not need to close the old partnership and start over.
If I own an LLP, do I still need a registered agent?
Yes. Every LLC, LLP, and corporation must maintain a registered agent with an office in the state where the entity is registered. That agent must be available during business hours to receive legal papers.