In other words, your partner can sign a contract that you disagree with, but your business will still be obligated to pay for it. In other words, even if you had nothing to do with a particular liability, the creditor can collect it from the business, the responsible partner or you, the innocent partner, at the creditor's choice. Although partners can try to recover losses from the wrongdoing partner, third parties can collect from the partners with the most assets or the easiest ones to reach, regardless of fault. Professional tax and financial planning can solve this problem, particularly in smaller businesses where the ability to provide tax-advantaged benefits may be a major consideration for the owners. Formed primarily to protect professional firms historically organized as general partnerships, LLPs limit partners' personal liability for wrongdoing of other partners and, in some cases, for business liabilities generally.
Protection varies greatly from state to state.
In addition, LLPs must often carry specified, minimum insurance levels. Because the benefits and disadvantages of LLPs can vary so greatly from state to state, you should consult your professional advisors before selecting this type of an entity.