Difference Between LLC and LLP

If you’ve read the explanation of LLC (Limited Liability Companies) on this website, you already know what it is. An LLP, on the other hand, is a limited liability partnership. Because of this, it’s only limited to two (2) members or partners.

The laws concerning LLPs vary from state to state, but generally, one partner is not liable for the misconduct, negligence, and mistakes of the other partner. In this way, they are like shareholders to the corporation, who cannot be sued, blamed, or charged for the mistakes of another partner. Unlike shareholders, however, either partner can run and manage the business. With that in mind, let’s explore the LLC versus LLP so you can compare each option and select the one that is better suited to your business.

LLC versus LLP

Now that you know what an LLP is, let’s start by enumerating its similarities with an LLC:

• No double taxation. Meaning, in most cases you only get taxed for the same income once.
• Less paperwork, record keeping, and documentation than a corporation.
• Cost of forming an LLC is similar to that of an LLP
• Members/Partners own the business as a group/partnership.
• Unlike a corporation, LLCs and LLPs can’t have outside shareholders nor can they sell stocks to the LLC/LLP

Now, let’s take a look at the difference between LLC versus LLP:

• The number of LLC members can often range from two (2) to five (5). A partnership only has two (2) members.
• Usually, unlike an LLC, an LLP doesn’t dissolve when a partner dies or goes bankrupt.
• In some cases, usually for companies that provide professional services (such as legal, accounting, or consulting), they can’t operate as an LLC in all the states where they want to conduct business. LLPs, on the other hand, have wider coverage, so they are often preferred for this reason.
• In many states, the partners of an LLP are given less protection from each partner’s personal creditors, so there’s less of a line separating personal and business finances, unlike in LLCs
• There are differences that vary from state to state, so it’s best to learn your state’s laws on LLC versus LLP before making a decision.

Now that you know the difference between LLC and LLP, you can make a better, more informed decision before submitting any paperwork. It’s best to talk to a lawyer or accountant, to get the perspective of someone who is more familiar with the laws and regulations concerning LLcs and LLPs in your state.