Partnership Liability in the United States

Cause of Action by Third Person to Establish Partnership Liability: an Overview

This section examines this type of action. This subject identifies the various elements of the Cause of Action by Third Person to Establish Partnership Liability, offering a practical approach to the litigation issues of this cause of action. See also the entry about legal risks.

Scope of a Partner’s Liability Shield in the Uniform Partnership Act (UPA)

The amendments to add LLP provisions to the Uniform Partnership Act (1994) include a new Section 306(c) providing for a corporate-styled liability shield which protects partners from vicarious personal liability for all partnership obligations incurred while a partnership is a limited liability partnership. The complete liability shield comports with the modern trend among the states.

Most states, however, have adopted a partial liability shield protecting the partners only from vicarious personal liability for all partnership obligations arising from negligence, wrongful acts or misconduct, whether characterized as tort, contract or otherwise, committed while the partnership is an LLP. The Act does not alter a partner’s liability for personal misconduct and does not alter the normal partnership rules regarding a partner’s right to indemnification from the partnership (Section 401(c)). Therefore, the primary effect of the new liability shield is to sever a partner’s personal liability to make contributions to the partnership when partnership assets are insufficient to cover its indemnification obligation to a partner who incurs a partnership obligation in the ordinary course of the partnership’s business.