General Partnership Vs. LLC

By Elizabeth Rayne

Choosing a proper business structure is one of the crucial steps encountered by owners in the initial stages of operating a company. One option is to structure the business as a limited liability company; another route is formation as a general partnership. Differences in tax liability, as well as personal liability for members regarding debts and other legal obligations, are the defining characteristics of what separate these designations.

Formation and Ownership

LLCs and general partnerships differ in the method of formation and number of owners. Generally, an LLC is created by filing formation documents with the state business registrar, while a partnership is formed as soon as two or more individuals begin doing business together. An LLC may be owned by a single individual or multiple people. Owners of an LLC are known as members. In contrast, partnerships are owned by at least two individuals. As such, a sole business owner may not own a partnership.


An LLC is an independent legal entity, while a general partnership is a business that operates under the names of its owners. As an independent legal entity, an LLC may own property or enter into contracts separately from the owners of the business. LLC members are not usually personally liable for the debts or obligations of the business. On the other hand, partners in a general partnership are personally liable for the business's debts and obligations. When a partnership owns assets or owes money, the partners do as well.

Ready to start your LLC? Start an LLC Online Now


In some cases, an LLC and a partnership are treated similarly by the IRS. The IRS does not recognize an LLC as a business entity, but instead requires LLCs to elect to be taxed as a corporation, partnership or sole proprietorship on tax returns. When the LLC has more than one member, it may elect to be treated as a partnership for tax purposes. Partnerships are considered disregarded entities, meaning they do not pay separate business income tax. Instead, partners report business income on their personal tax returns in proportion to their ownership of the business.


General partnerships and LLCs may be managed in a similar way. Each business type allows for a flexible management structure and permits business owners to decide how they want to separate responsibilities. In an LLC, members may draft an operating agreement to designate management duties and specify how profits will be distributed. Similarly, a general partnership may have a partnership agreement to specify the rights and responsibilities of each member.

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


Related articles

Operating Agreements for a Member-Managed LLC

A limited liability company, or LLC, is a form of business entity often utilized by small businesses. One of the main benefits to operating a business as an LLC is the flexibility of an LLC. Unlike a corporation, which is required by law to have a board of directors, the owners of an LLC, which are called members, have the ability to determine how the LLC will be structured and operated.

What Is a Disadvantage of the Corporate Form of Business Entity?

Compared to other business entities, corporations offer many advantages, such as liability protection and ease of transferring ownership shares. Though corporations are very common, a corporation may not be the best structure for every situation, and it does have some disadvantages.


A “sole proprietorship” is a business structure in which one person operates a company with no partners and unlimited liability for business debts. A limited liability company, or LLC, is an entity created by state law that allows one or more individuals to carry on a business and limit their liability in much the same way as corporations do. Whether a sole proprietorship or an LLC is the best structure for your business depends on several factors.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Characteristics of a Limited Liability Company

The limited liability company, or LLC, is a popular business entity type among entrepreneurs and small business owners ...

Incorporating Vs. LLC

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

Can a Business Own Part of an LLC?

Members of a limited liability company (LLC) can be individuals or business entities, including corporations, trusts or ...

Can an LLC Be an Individual or Sole Proprietor?

A limited liability company is a common business structure which combines the limited liability of a corporation with ...

Browse by category
Ready to Begin? GET STARTED