{"id":5461,"date":"2021-09-15T10:40:01","date_gmt":"2021-09-15T15:40:01","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/llcs-vs-llps.html"},"modified":"2024-05-21T23:59:36","modified_gmt":"2024-05-22T04:59:36","slug":"llcs-vs-llps","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/llcs-vs-llps.html","title":{"rendered":"LLCs vs. LLPs"},"content":{"rendered":"\n
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LLCs vs. LLPs<\/h1>\n
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\n By Linda Long, J.D.<\/a> | Legally reviewed by Tim Kelly, J.D.<\/a>\n | Last updated\n
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\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

You can set yourself up for success in your new venture by choosing the proper business structure. Common business structures that new business owners choose include limited liability companies and limited liability partnerships.<\/p>\r\n

You can find information about the similarities and differences between a limited liability company<\/a> and a limited liability partnership below.<\/p>\r\n

Form your LLC with confidence.\u202fOur trusted partner LegalZoom has packages starting at $0 + filing fees.<\/a><\/i><\/b><\/p>\r\n

LLC vs. LLP<\/h2>\r\n

A limited liability company<\/a> (LLC) is formed by filing articles of organization with your state’s secretary of state and paying the appropriate filing fee. LLCs must have at least one member.<\/p>\r\n

A limited liability partnership<\/a> (LLP) is a general partnership with limited liability protection for the partners. In most states, the partners must file an amended partnership agreement with the secretary of state’s office to change the business structure from a general partnership to a limited liability partnership.<\/p>\r\n

LLC vs. LLP: Advantages and Disadvantages<\/h2>\r\n

Whether you form an LLC<\/a> or LLP depends on a variety of factors. Consider which type of business you want to start, what level of liability protection you would like for business owners, and how the business owners will make decisions.<\/p>\r\n

LLC<\/a> members enjoy personal liability protection from the obligations of the business; however, members are not protected from liability for the actions of the other members. If a court finds that the corporation was not formed for legitimate business purposes, it will pierce the corporate veil<\/a> and hold corporate officers liable for business obligations.<\/p>\r\n

Similarly, LLP partners are not personally liable for the actions of the other partners. They will not risk their personal assets to repay business debts created because of the actions of other partners.<\/p>\r\n

Tax Management of LLCs and LLPs<\/h2>\r\n

Both LLCs and LLPs are pass-through entities<\/a>. The IRS does not treat pass-through entities as separate legal entities for tax purposes. The business itself is not taxed; owners report the income they receive on their personal tax returns. This eliminates the problem of double taxation.<\/p>\r\n

LLC and LLP owners must pay self-employment tax on their share of the profits. The self-employment tax is equivalent to the taxes withheld for Medicare and Social Security on a traditional employment paycheck.<\/p>\r\n

Liability Protection<\/h2>\r\n

Owners of LLCs and LLPs enjoy personal liability for the obligations of the business.<\/p>\r\n

For example, if the business cannot repay a debt in a general partnership, the general partners pay the debt with personal assets. Owners in a limited liability partnership or limited liability company are not personally responsible for this type of debt.<\/p>\r\n

Management Structure: LLC vs. LLP<\/h2>\r\n

An LLC’s operating agreement<\/a> should address specific details about management. These details include:<\/p>\r\n