MARYLAND REGISTERED LIMITED LIABILITY PARTNERSHIPS

In the past, the general partnership entity afforded a dependable business structure. However, in today's rapidly changing environment, risks associated with conducting business continue to escalate and partners need more protection. The Maryland Uniform Partnership Act now allows a general partnership to register with the Maryland State Department of Assessments and Taxation as a Limited Liability Partnership (LLP).

Amendments to the limited liability partnership law in Maryland, effective October 1, 1995, should be a great benefit to partners of a general partnership. Subject to certain limitations, a partner of a general partnership that is registered as a limited liability partnership, will not be personally liable for any subsequent partnership debts or obligations. Therefore, in general, assets of the partners will be insulated, while preserving the status of the partnership.

The benefits of the new law apply only to debts or obligations incurred while the partnership is a registered limited liability partnership. Thus, the law does not shield a partner from responsibility for obligations and debts of the partnership incurred prior to its registration as an LLP. Further, the new law does not shield a partner from responsibility for his own negligence or wrongful acts or those of another person if the partner is negligent in appointing, directly supervising, or cooperating with the other person, even if those events occurred after registration.

While the new law allows a partner of an LLP to have many of the same traditional protections from liability that a stockholder has with respect to debts and obligations of a corporation, in most cases it still allows the entity to be treated as a partnership for income tax purposes.

The Maryland Attorney General's office has advised the clerks of the courts that registration of a general partnership with the Maryland State Department of Assessments and Taxation as a limited liability partnership is not a change from one entity to another. Therefore, upon registration, no recordation tax will be due for real estate owned by the partnership. The protection from partnership debts and obligations makes registration as an LLP attractive to nearly all general partnerships. This new form of entity is now available in over 35 states. However, partner liability limitations vary from state to state.

As the states continue to embrace this new statute, the LLP may be recognized as the preferred form of choice for many business entities, including professional organizations. If you are a partner in a general partnership, we would be happy to talk with you to see if a limited liability partnership is right for your business structure.

FREQUENTLY ASKED QUESTIONS AND ANSWERS

Why register as an LLP?
Registering as an LLP, in general, limits a partner's personal liability for obligations incurred by a partnership.

As a registered LLP, are we considered a different entity?
No. A general partnership that registers as an LLP is considered to be the same entity after registration.

Does an LLP differ from an LLC?
Yes. Any general partnership may elect to be an LLP; an LLC requires a new organization.

If we register, will we need to change the name of our company?
Yes. Upon registration with the Maryland State Department of Assessments and Taxation, the new name must include the words "limited liability partnership" or the abbreviation "L.L.P." or "LLP" as the last letters of its name.

Suppose we register our partnership in Maryland and then relocate to another state. What will happen?
Most states recognize foreign LLPs, although the limitations on liability of partners in such cases is not currently certain.

Can Adelberg, Rudow, Dorf & Hendler, LLC help?
Yes. Our attorneys have extensive experience in formation and reorganization of business entities.