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Indemnification May Add to LLP Protection

By Leslie D. Corwin
August 01, 2003

Editor's note: The first part of this article focused on various LLP statutes, including sample language, and the basics of the concept of indemnification. We now turn to the potential consequences of indemnification and the future of LLPs.

There are situations when indemnification against the partnership assets may indirectly obligate partners to outside creditors. While many LLP statutes hold that partners are not liable “either directly or indirectly, by way of indemnification, contribution, assessment or otherwise” for the specific claims in which their liability is limited, under contribution laws, many partners still may remain liable for some of the firm's general obligations, including obligations incurred before the firm registered as an LLP. Since, often times, the firm's assets must be exhausted before contribution obligations arise, it may be difficult to allocate the sources of the remaining partnership debt, and as a result, individual partners may indirectly pay towards liabilities for which they are otherwise protected. Bromberg & Ribstein, '3.09(b). There is an emerging trend by which partnership statutes require depletion of partnership assets before plaintiffs can proceed against individual partners for their vicarious. Bromberg & Ribstein, '3.08(b). The marriage of LLP statutes with the exhaustion requirement provides another layer of protection for law firm partners in preventing creditors from accessing partners' assets.

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