LLP Structure Will Be Put to the Test

The Limited Liability Partnership - LLP - is a rather new entity, created in the last decade as an alternative to traditional partnerships, offering the protection of a corporate structure by limiting the personal liability of partners in an organization.

But LLPs are created under state law, and each state can decide how to treat the entity when it comes to assigning liability. The durability of the entity has not yet been tested, but there is a likelihood that Andersen's audit of Enron will put the strength of the LLP to the test.

In a corporation, when officers of the corporation act irresponsibility, they can be held personally liable for corporate debt resulting from those actions. In an LLP, if it can be proved that partners acted irresponsibly, can those partners be held personally liable? That is a question various state courts will be examining as the facts come out regarding the shredding of documents and deleting of e-mail messages that were conducted in the Andersen offices.

"You work for Arthur Andersen, you commit malpractice, you are liable for that malpractice. The client can take your house and car and everything else," speculated Larry Ribstein, a law professor at George Mason University who has studied and written extensively about LLPs.

What apparently remains unclear is how far personal responsibility can permeate the entity. Should partners who were not involved in the Enron engagement be held liable for the actions of others? This is one issue the courts will be examining in months to come.

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