Registered Limited Liability Partnerships

Professional firms practicing in specified areas, such as law and accounting, may be able to take advantage of state laws that allow general partnerships reclassify themselves as registered limited liability partnerships (RLLPs) and thus afford partners of the RLLP with statutory protection from liability for debts and obligations resulting from errors, omissions, incompetence, negligence or malfeasance committed by other partners or partnership agents who are not under the supervision of the protected partner at the time of the act.  Protection would not be available to partners who have directly participated in the claimed act or who have knowledge of the act during its occurrence but fail to take appropriate actions.

The partnership agreement for an RLLP is similar in form and content to the agreement used whenever a service-related partnership is formed; however, there are certain provisions that should be included in order to ensure that RLLP status is achieved and maintained:

  • The agreement should state the intent of the partners to comply with the applicable state requirements for RLLP status including registration with the Secretary of State and any state agencies that prescribe rules and regulation for practice of the profession to be engaged in by the partnership. 
  • The statement of purpose of the partnership should be consistent with the conditions for eligibility for RLLP status provided by statute. 
  • The term of the partnership should be co-extensive with compliance with the registration requirements (i.e., the term should not begin until the registration as an RLLP has become effective and all other requirements for limited liability have been satisfied). 
  • The name of the partnership should identify the fact that it is operating as an RLLP (e.g., name of partnership, LLP). 
  • The partners must comply with any security requirements imposed by statute including maintenance of specified amounts of professional liability insurance and/or posting of a bond with the state (see, e.g., California Corporations Code § 16956(a)(1)).

Other issues that should be addressed in a comprehensive form of partnership agreement include capital contributions and capital accounts; rights, powers and liabilities of the partners, including participating in day-to-day management and voting requirements for extraordinary partnership decisions; restrictions on competition; allocation of income, gain, losses and distributions; books and records, accounting procedures and reporting requirements; meetings; interested party transactions; transfers of interests; dissociation of partners (i.e., retirement, withdrawal, death, disability or bankruptcy of partners); admission of new partners; dissolution and liquidation; failure of partners to make required contributions or otherwise comply with the terms of the agreement; and dispute resolution.  In addition, since each partner will also be an employee of the partnership and perform professional services on behalf of the partnership the agreement should outline the general terms of this employment relationship: salary or draw; vacation; facilities and support; benefits; professional licensure requirements; automobile and travel expenses.  Finally, to the extent permitted by applicable state law, the partnership agreement should include limitations on competitive activities by partners during his or her time with as a partner and for a specified period after dissociation to ensure that he or she does not misappropriate proprietary and confidential information regarding the partnership’s client base and use such information to engage in unfair competition with the partnership.

The content in this post has been adapted from material that will appear in California Transactions Forms: Business Entities (Summer 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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