LLP partner liability in Ontario: what the shield covers, and what it doesn't

The professional who joins a firm with “LLP” after its name usually assumes the letters mean what they mean for a corporation: that the business is a separate person and the people inside it are safe. They are genuinely not the same thing. An LLP is still a partnership. Its partners still own its assets and its debts in common, still report its income on their own returns, and still owe each other the duties partners have owed each other since the nineteenth century. What the LLP changes is one specific exposure — the one that made partnership terrifying — and it is worth knowing exactly where that change begins and ends before you sign the partnership agreement.

The exposure the LLP was built to fix

Section 10(1) of the Partnerships Act makes every partner liable, jointly with the others, for all debts and obligations of the firm incurred while they are a partner. In an ordinary partnership that includes the negligence of every other partner. A tax partner in Ottawa was, on the words of the statute, personally liable for a malpractice judgment against a litigation partner in Toronto she had never met, to the full extent of her house and savings, if the firm's insurance and assets ran out. Large accounting firms in the 1990s faced exactly that arithmetic when audit failures produced claims larger than the partnerships, and the LLP was the legislative answer. Ontario introduced it in 1998 as a “partial shield” — protection against other partners' negligence, but not against the firm's ordinary contract debts — and in 2006 amended section 10, with effect from August 2007, to the “full shield” that applies today, under which a partner is not liable for any partnership obligation that arises from another person's negligent or wrongful act.

What the shield does not cover

The two lines that matter most are probably the second and third rows of the exceptions. Your own negligence is always yours; the LLP has never changed that, and the professional liability insurance the regulator requires is the real protection there. And “direct supervision” reaches the associate, the articling student, the junior accountant and the paralegal whose work you review. The partner who signs off on a file is not shielded from what is in it. A shield that stops at supervision means the exposure follows responsibility, which is the design: the legislature wanted a partner to answer for their own department, not for someone else's.

Section 10(3.1) is the line professionals forget. The shield protects the partner's personal assets outside the firm. It does not protect what is inside it. A judgment against the partnership is satisfied first from partnership property, and a partner's capital account, undrawn profits and share of the firm's receivables are partnership property. In a firm hit with a claim that exceeds insurance, every partner's capital goes before any partner's house does — including the capital of the partners who had nothing to do with the claim.

The ordinary debts of the firm

Under the full shield, a partner is protected from partnership obligations arising from negligent or wrongful acts. The firm's lease, its bank line, its equipment leases and its supplier accounts are not negligence; they are contracts. The statute's wording after 2006 is broad enough that it is generally read as covering ordinary contractual obligations too, but the safer assumption for a partner is that landlords and banks do not rely on the statute at all. They ask for personal guarantees. A partner who has guaranteed the firm's lease is liable on the lease whether the firm is an LLP, a general partnership or a corporation; the entity does not reach a contract the partner signed in their own name. Read every guarantee you are asked to sign as a new partner, ask whether it is capped, ask whether it releases you when you leave, and ask whether the senior partners signed the same one.

Who can form an LLP in Ontario

Section 44.2 of the Partnerships Act limits LLPs to the practice of a profession governed by an Act that expressly permits it. Lawyers, under the Law Society Act; chartered professional accountants, under the Chartered Professional Accountants of Ontario Act; and a small number of other regulated professions can use the structure. A general business — a consultancy, a construction partnership, a real-estate venture — cannot. Those businesses reach limited liability by incorporating, or by using a limited partnership with a corporate general partner, which is a different instrument with a different set of rules. The regulator's permission is not a formality: each profession's Act and its by-laws set conditions, including the professional liability insurance the firm must carry, and the shield is meant to sit on top of that insurance rather than replace it.

Forming one is administratively light. Section 44.1 requires a written partnership agreement designating the partnership as an LLP and stating that the Partnerships Act governs it; section 44.3 requires the firm name — which must end in “LLP,” “L.L.P.” or the French equivalent — to be registered under the Business Names Act, and the designation must appear on the firm's letterhead, invoices and contracts. Carrying on business as an LLP without the registration is an offence, and, more practically, a firm that forgets the letters on its engagement letters invites the argument that the client was never told.

What the agreement has to do that the statute does not

The Partnerships Act is a default code from 1890 with the LLP sections bolted on. It says nothing about how the firm allocates a claim internally once the shield has protected the innocent partners' homes but not their capital. That is the partnership agreement's job, and the usual answer is an indemnity from the responsible partner to the others, a mechanism for the firm to recover from that partner's capital and future draws, and an insurance clause that names the coverage the firm must maintain. Departure terms matter too: a partner who leaves remains liable for obligations incurred while they were a partner, so the agreement should say how long the firm's insurance tail follows them and who pays for it. And because an LLP, unlike a corporation, cannot retain earnings at a low tax rate, many professional LLPs sit alongside each partner's own professional corporation — the corporation is the partner, which changes both the tax and the liability picture and is worth a separate conversation about professional corporations in Ontario.

The LLP did what it was designed to do. It ended the era in which a partner's house answered for a stranger's file. It left everything else exactly where it was — which, for a partner reading their agreement for the first time, is most of it.