Limited liability partnerships, limited liability companies and professional corporations are hybrid forms of business organization designed to offer liability protection and tax advantages to businesses that may not be suited for traditional incorporation. Knowing the difference between these three similar forms of organization can help you to determine which form best suits your unique business.
Limited Liability Partnership (LLP)
The limited liability partnership form of business organization popular with partnerships that wish to protect themselves from financial liability for business debts. Since they are classified as partnerships, LLPs must have at least two partners; there is no maximum number of partners, however. LLPs are taxed as pass-through entities, allowing partners to avoid the corporate drawback of double taxation. Both the United States and the United Kingdom allow the formation of LLPs.
Limited Liability Company (LLC)
The limited liability company form of organization resembles the LLP form in almost all respects. Unlike LLPs, LLCs can have as little as one member, with no maximum restrictions. LLC owners, called members, can elect to have the company taxed as a pass-through entity if there is only one member, allowing the owner to avoid double taxation. LLCs also offer liability protection to members.
Professional Corporation (PC)
A professional corporation offers liability protection to professional service providers that would traditionally have structured their practices as sole proprietorships or partnerships. Examples of businesses suited to the PC form include dentists, doctors and lawyers. Professional corporation stockholders must all be licensed to practice the services that the PC exists to provide.
LLCs and LLPs are best suited to smaller businesses that wish to protect themselves from personal liability without dealing with the disadvantages of incorporation, such as dilution of ownership and extensive filing requirements. PCs are often formed by a group of practitioners in the same industry, providing liability protection for each of the practitioners in the group, regardless of whether they operate out of the same facility.