Advantages & Disadvantages of LLC Vs. LLP

By Anna Assad

A limited liability company is owned by members and is a mix of the features of a corporation and partnership; the structure provides personal asset protection for members. A limited liability partnership is owned by partners and provides some of the same protection from creditors as an LLC. Both business types carry benefits and drawbacks, but you may be required to use a particular type in your area. Some states only allow a professional service business, like an accounting firm, to form an LLP.

Taxation Designation

An LLP typically must file as a partnership for federal and state tax purposes. An LLC may file as a partnership, sole proprietor -- if the company only has one member -- or a corporation. Both an LLC and LLP can treated as a "pass-through" business entity for tax purposes, meaning the owners list company gains and losses on individual tax returns. An LLP itself is not subject to a federal income tax, but an LLC is if the company files as a corporation.

Liability

The personal assets of every member of an LLC are shielded from actions by the company's creditors, as with a corporation. An LLP may offer the same protection, but some states mandate at least one member of the partnership be accountable for business' financial obligations. The partners in the LLP typically decide which owner is liable for the business debts; the state may permit the liability to be spread among two or more partners.

Ready to start your LLC? Start an LLC Online Now

Operations

Both an LLC and LLP are formed once the necessary papers are filed with the state business department. The state the business files in becomes the state of formation, and the entity is considered "foreign" everywhere else. The requirements for a foreign LLC to conduct business legally vary by state, but the standards for LLPs are generally universal. A business with dealings across multiple states may find the standard foreign LLP process beneficial.

Owners

An LLC can have one or more members; there is no limit on how many members the LLC can have. Members can be organizations, trusts, another business or individuals. An LLP must have at least two members at all times, and the members must be individuals.

Ready to start your LLC? Start an LLC Online Now
Can I Have a Partner With an LLC?

References

Related articles

A Professional Corporation vs. an LLC

Starting a new business is a big undertaking that requires making many decisions. Once you have developed a vision for the business, you must decide how to structure it. Each state has laws that govern the basic structure and specific rules for each type of business entity permitted in that state. Two examples of common business forms in all states are professional corporations and limited liability companies. PCs and LLCs are popular choices for small businesses. You must determine which business form will best suit your company's needs.

Massachusetts LLC Vs. S Corp

An S corporation, or S corp, and a limited liability company, or LLC, are two business entities offering liability protection that people often consider when forming a business in Massachusetts. Both of these business structures restrict the owner's liability to the amount of his investment in the company. There are several differences between the two entities, including how they are formed, how they are taxed and how they must be managed.

Can an LLC Partner Claim a Business Income As Self Employment?

From a legal perspective, there are no partners in an LLC, only owners -- who are called members. LLC members, in most cases, "must" claim business income as self-employment earnings. LLCs are "pass through" businesses, with all profits and losses treated as self-employment personal income or loss. However, there are a few options to treat LLC income differently.

LLCs, Corporations, Patents, Attorney Help

Related articles

Advantages & Disadvantages of a Limited Liability Company

A limited liability company, or LLC, is an entity that offers both advantages and disadvantages to a business owner. ...

Why Set Up an LLC?

A limited liability company offers many benefits, but whether or not the business type is right for you depends on your ...

General Partnership Vs. LLC

Choosing a proper business structure is one of the crucial steps encountered by owners in the initial stages of ...

Incorporating Vs. LLC

One of the most important initial decisions in starting a business involves deciding what type of business entity your ...

Browse by category
Ready to Begin? GET STARTED