ferred to as "the Act") creates a new form of business organization by altering a basic and simple principle of partnership law. (END1) Each partner is jointly and severally liable for any liability arising from the partnership business that was created or incurred as the result of a wrongful act or omission by any other partner. (END2) A registered limited liability partnership (referred to as "RLLP") is a partnership that is otherwise subject to the D.C. Uniform Partnership Act (D.C. Code 41-101 et seq. and referred to as the "D.C. UPA") except that the liability of the partners is limited as to causes of action that arise from the misconduct of another partner or a representative of the partnership. Therefore, where a professional malpractice claim arises from the acts or omissions of any partner, the partners of the firm who did not participate in those acts or omissions shall not be liable only because they are partners in the same firm as the alleged malfeasing partner or representative.

The RLLP grew out of the so-called savings and loan crisis of the late 1980s when law firms and accounting firms that had served financial institutions that later failed were sued by the Resolution Trust Corporation and the Federal Deposit Insurance Corporation on complex professional malpractice claims. Applying the principle of joint and several liability of all of the partners for wrongful acts or omissions of a partner, those partners who had no knowledge of nor involvement in the matters that led to the malpractice claims were, nevertheless, held liable on those claims. Not surprisingly, Louisiana and Texas were among the first states to enact the concept of the RLLP into law. (END3)

It is clear under the Act that a general partnership can form as an RLLP and each general partner who qualifies is entitled to the limited liability. However, it is not clear whether a limited partnership can form as an RLLP so that the general partner is afforded limited liability under the Act. The D.C. UPA applies to limited partnerships except insofar as any statutes that specifically governs limited partnerships are inconsistent with the D.C. UPA. The D.C. Uniform Limited Partnership Act (D.C. Code 41-401 et seq. and referred to as the "D.C. ULPA") provides in relevant part that a general partner of a limited partnership has the liabilities of a partner in a partnership without limited partners. (END4) At least on the face of the relevant statutory provisions, there does not appear to be an inconsistency that would prevent a limited partnership from forming as an RLLP.

The D.C. Rules of Professional Conduct do not appear to prohibit law practice conducted through an RLLP. Law firms, as well as accounting firms and medical practices, will be more inclined than most businesses to organize as RLLPs. However, any partnership may form as an RLLP without regard to the nature of its business.

Nature and Extent of the Limited Liability in an RLLP

The nature of the limited liability afforded to a partner in an RLLP is the same as the nature of the limited liability afforded to shareholders in a corporation. (END5) The individual assets of a partner cannot be reached by a judgment creditor to satisfy a claim that arises exclusively from the items of liability and the conditions enumerated in the Act. A partner in an RLLP is afforded limited liability only from liability that arises from errors, omissions, negligence, incompetence or malfeasance committed by another partner or a representative of the partnership in the course of partnership business. (END6) The limited liability shall not be afforded to the partner if any one of the following conditions exists:

1. That partner supervised or directed the partner or representative who committed any item of liability at the time at which the any such item of liability was committed (END7), or
2. That partner was directly involved in the specific activity in which any item of liability was committed by another partner or representative of the partnership (END8), or
3. That partner had written notice or knowledge of any item of liability committed by another partner or representative of the partnership (END9).

The limited liability afforded under the Act does not extend to any claim on any partnership obligation or debt other than a claim grounded in the misconduct of a partner (END10). The partners remain individually liable for partnership obligations created by any conduct other than the items of liability set forth in the Act. Also, the limited liability afforded by the Act does not shield the assets of the partnership from any cause of action arising from the misconduct of a partner (END11).

Forming and Maintaining an RLLP

An RLLP can be created only according to the terms of the Act. A mere agreement, whether actual or constructive, among the partners to create an RLLP is insufficient (END12). Either a partnership that existed before the effective date of the Act or a partnership formed after the effective date of the Act may organize as an RLLP. The partnership must pay the requisite fee and submit an application to the D.C. Department of Consumer and Regulatory Affairs (referred to as the "DCRA") that sets forth the following information:

1. The name of the partnership,
2. The address of the principal office and the name and address of the registered agent for service of process,
3. The written permission of the registered agent to serve as registered agent,
4. The number of partners,
5. A brief statement of the business in which the partnership engages.
6. A statement that the partnership will maintain the requisite insurance requirement (see notes 18-19, infra.)
7. Any other information required by the DCRA. (END13)

The application must be executed by a majority in interest of the partners or by one or more partners so authorized by a majority in interest of the partners. (END14) Upon acceptance of a proper application, the RLLP shall be registered for one year from the date of registration and, to maintain the RLLP, the registration must be renewed on an annual basis. (END15)

The name of the RLLP must contain the words "registered limited liability partnership" or the abbreviation "L.L.P." as the last words or letters of its name. (END16) The name requirement is part of the statutory definition of an RLLP. (END17) The purpose of the name requirement is to provide notice to third persons dealing with the partnership that the partners shall be afforded limited liability under the terms and conditions of the Act. A partnership that becomes an RLLP must assure that its name is amended in any forum or medium in or through which the name of the partnership is held out to third persons. The partnership agreement should be amended to conform with the RLLP name requirement. Also, any medium of advertising such as signs, directory listings, letterheads and business cards must be changed to reflect the required RLLP designation.

The RLLP is required to carry liability insurance that is designed to cover the kinds of errors, omissions, negligence, incompetence or malfeasance for which liability is limited under the RLLP statute. ( (END18) The RLLP is required to carry that liability insurance in a minimum amount of the greater of either $100,000 or the minimum coverage carried by the individual partner who, of all of the partners in the partnership, carries the greatest amount of insurance coverage. (END19) A partnership cannot be an RLLP if the partnership cannot obtain and maintain the requisite liability insurance.

The Act does not contain an express penalty for the failure to obtain or maintain the liability insurance. However, the liability insurance requirement is a mandatory provision and the partners are required to affirm in their application that they will comply with that requirement. (END20)Therefore, obtaining and maintaining the liability insurance requirement should be deemed a condition to RLLP status. If, at the time the partners are sued for the misconduct of another partner and the partnership has not obtained or maintained the required liability insurance, presumably the partnership would not hold RLLP status. The partners would not then be able to avail themselves of the limited liability afforded by the Act.

Partners in a general partnership have the right to be indemnified by the partnership for payments made and personal liabilities incurred in the ordinary and proper conduct of business or for the preservation of the partnership business or property. (END21) The general partner in a limited partnership has the right to be indemnified except for, inter alia, liability arising from wilful misconduct, recklessness or gross negligence. The Act does not expressly restrict the right of the incompetent or malfeasing partner to indemnification. However, under the D.C. UPA, indemnification is available only for personal liabilities incurred in the "proper conduct of business". (END23) The partners who would be entitled to the limited liability afforded by the Act could presumably defeat a claim for indemnification from a partner whose personal liability arose out of an item of liability under the Act since the acts underlying those items of liability would not be made in the "proper conduct of business". A claim for indemnification by a general partner of a limited partnership could be similarly disposed on the grounds that the acts underlying the items of liability set forth in the Act constituted wilful misconduct, recklessness or gross negligence.

It is unlikely that forming a partnership as an RLLP will cause the partnership to possess the corporate attribute of limited liability within the meaning of the Internal Revenue Code. An RLLP will most likely not risk having a predominance of corporate attributes and being classified as a corporation for federal tax purposes. The partners in a RLLP are not afforded limited liability on all partnership debts and obligations but only on liabilities that arise from the misconduct of another partner. The extent of the limited liability afforded to partners of an RLLP differs substantially from the limited liability afforded to shareholders of a corporation. There is no apparent reason to conclude that an RLLP will be classified for tax purposes any differently from any other partnership. Consequently, tax considerations are not factors to be weighed in deciding whether to choose RLLP status. (END24)

Conclusion

As with any form of business organization, the RLLP may not the appropriate form for every business. However, it should serve as a starting point for determining the proper business organization where the business, especially rendering legal, accounting and medical services, is to be conducted through a non-corporate form of organization.

The conception and enactment of the RLLP represents a continuation of the trend, begun in the late 1980s, of combining the respective advantages of corporations and partnerships. With the enactment of the Act and, if the D.C. City Council enacts the pending D.C. Limited Liability Company Act (Bill 10-277), entrepreneurs in the District of Columbia will have available to them the fullest array of modern business organizations.

ENDNOTES

1. D.C. Law 10-66 took effect on October 14, 1993 and is published in 40 D.C. Register 5764 (August 13, 1993). It will appear in the 1994 Supplement to title 42 of the D.C. Code which will be published in July or August of 1994. All references are to the new D.C. Code sections as they will appear in the 1994 Supplement rather than to the sections of the Act itself. 
2. D.C. §41-112 
3. LCCA Art.25A §9:3431; Tex Rev Civ State Art.6132b, §15, §45A-C 
4. D.C. Code §41-443(b) 
5. See D.C. Code §29-322 
6. D.C. Code §41-146(a) 
7. Ibid 
8. Id 
9. Id 
10. Id. at (b) 
11. D.C. Code 41-146©) 
12. D.C. Code §41-143 
13. D.C. Code §41-143(a)(1)-(7) 
14. D.C. Code §41-143(b) 
15. D.C. Code §41-143(d) 
16. D.C. Code §41-144 
17. Ibid 
18. D.C. Code §41-145(a) 
19. Ibi 
20. Id 
21. D.C. Code §41-117(2) 
22. D.C. §41-409 
23. D.C. Code §41-117(2) 
24. See Treas. Reg. §§301.7701-(2)-(4); See also Morrissey v. Commissioner, 296 U.S. 244 (1935); Larson v. Commissioner, 66 TC 159 (1976); Rev. Rul. 88-76.