What About the Limited Liability Partnership?

Arthur Anderson is the global accounting colossus that is being pursued by the Justice department for the criminal charge of obstruction of justice in the Enron case. They, like many professional service firms, are organized as a limited liability partnership (LLP).

The LLP is the youngest of legal entities. It arose out of the savings and loan crisis of the 1980's. The state of Texas was the first to created the entity to help protect lawyers that were being pursued by the federal government for their work for S&Ls.

The LLP is a hybrid of the partnership and the corporation. It allows the partners of the professional service firm to have management powers as well as limited personal liability. Before the creation of the LLP, professional service firms were largely limited to operating as general partnerships, due to the need for partners to be active in management and due to the board of accountancy's prohibition of LLC's for accounting firms. This left each partner exposed to liabilities of the company and to liability that arose from the actions of their partners.

The partners of Arthur Anderson, because they are organized as an LLP and not a general partnership, will enjoy protection from the liabilities of their firm. They will also be protected from liabilities that arise from criminal activity of their partners. However, no legal entity can protect a person from liability of criminal action. If an Arthur Anderson partner is found guilty of obstruction of justice in the Department of Justice' investigation of Enron, the LLP will not protect him or her personally.