Paralegal Advanced Competency Exam (PACE) Practice Exam

In a Limited Liability Partnership (LLP), what protection does it provide to partners?

1. Protection from all forms of liability

2. Protection from personal liability for other partners’ negligent acts

3. Protection from tax implications on profits

4. No protection, only shared liability

The correct answer is: Protection from personal liability for other partners’ negligent acts

In a Limited Liability Partnership (LLP), the correct protection it provides to partners is specifically related to personal liability concerning the negligent acts of other partners. Under this structure, partners are typically shielded from being held personally liable for the negligence, misconduct, or shared debts incurred by their fellow partners. This means that if one partner acts negligently in the course of business and causes a loss, the other partners would not be financially responsible for that partner's actions. This aspect of LLPs encourages collaborative business practices while minimizing individual risk, making the LLP an attractive option for professionals such as lawyers, accountants, and architects who operate in partnerships. Other options, such as complete protection from all forms of liability, do not accurately reflect the nature of LLPs because partners may still be liable for their own wrongful acts and for the obligations of the partnership itself. Additionally, while LLPs can provide favorable tax treatment, this is not a definitive protection regarding liability. Lastly, stating that there is no protection and only shared liability misrepresents the LLP structure, as it does indeed offer a significant degree of protection compared to other partnership forms.