LLC VS LLP: Key Difference, Similarities & All You Should Know

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Compared to corporations, partnerships, and limited partnerships, LLPs and LLCs differ in legal liabilities and business commitments and have pros and cons. The USA has more LLCs, whereas the UK has more LLPs. This post focuses on the key differences between LLC and LLP.


The Limited Liability Company (LLC) and the Limited Liability Partnership (LLP) are two of the most common business structures in the United States. Both structures provide liability protection to their owners, but there are some major distinctions between them. The fundamental distinction between LLCs and LLPs is that in an LLP, the partners are personally accountable for the business’s debts and liabilities, whereas, in an LLC, the members are not. This means that if an LLP is sued, the partners can be held personally accountable for the damages, whereas if an LLC is sued, the members are not. Another significant distinction is that LLCs are more adaptable than LLPs in terms of management. The members of an LLC have the option of having the business handled by a single member or by a group.

In an LLP, the partners must operate the business as a partnership, which requires all partners to agree on all significant decisions. Basically, both LLCs and LLPs provide their owners with limited liability protection. This means that the business’s debts and responsibilities are not personally responsible to the owners. Both LLCs and LLPs are simple to establish and operate. There are no specific prerequisites for establishing an LLC or LLP, and both forms can be established by submitting a simple form to the state. Pass-through taxation is available with both LLCs and LLPs. This means that the company’s revenues and losses are passed on to the owners, who record them on their personal tax returns.

When choosing between an LLC and an LLP, it is important to consider the specific needs of your business. If you are looking for a business structure that offers limited liability protection and is easy to set up and maintain, either an LLC or an LLP may be a good option.

LLC vs LLP for Real Estate

Real estate LLC vs partnership is a serious worry for business owners looking to shield themselves from vulnerability. Owners who use a business structure for real estate investment boost their chances of avoiding personal liability for incidents that occur on the property. Property ownership, whether as a person or in a general partnership, entails infinite liability. This means that the property is exposed to guests, tenants, and even trespassers filing a lawsuit for fictitious claims. If they win the lawsuit, they may seize your home, personal belongings, and bank account to settle a judgment. When a limited liability company (LLC) or limited partnership (LP) is engaged, liability is restricted to the LP or LLC’s assets.

#1. Beneficial Management Structure

Limited Liability Company

An LLC or LP may provide the management structure that suits your needs. With an LLC, you have access to a flexible schedule that allows two options: member-management or manager-managed. All members have limited liability, and in some states, an LLC can be formed by one person only.

Limited Partnership 

A limited partnership does not have the option of formation by one person. Basically, it requires at least one general partner and one limited partner. The general partner is held personally liable. This can be circumvented by forming an LLC or a corporation to serve as the general partner. Two additional reasons for using an LLC or LP for real estate investments are to gain benefits from estate planning and gifting opportunities when ready.

#2. Depreciation

Depreciation is one of the advantages of owning a rental property. This is related to the amortization of the property’s cost. This can happen over the length of the loan or the ownership period. If the general partner participated in the operation or management of the rental property, the general partner would not be able to take advantage of the expense of depreciation.

LLC vs LLP vs S Corp 

For businesses that qualify, electing “S-corp” status may result in significant tax benefits. When most people talk about corporations, they’re probably referring to the most prevalent and identifiable type: a “C-corp,” which pays corporate income tax and has an unlimited number of stockholders. However, the designation “S-corp” denotes something else. Though a corporation is a form of business entity, an S-corp is a tax designation accessible to select corporations and limited liability companies. The biggest distinguishing feature of an S-corp is its “pass-through” tax structure.

Every entrepreneur should compare LLC vs. LLP vs. S corp business structures. A company can be as small as one person or as large as a worldwide behemoth. Each, though, begins with simple paperwork. Nevertheless, the essential ideas to consider while incorporating an LLC, LLP, or corporation are liability and tax obligations. The primary distinction between limited liability partnerships (LLPs), limited liability companies (LLCs), and S corporations is the amount of money owed to the IRS. Profits are taxed differently under each structure, and who pays those taxes changes.

An LLC is a versatile company structure. However, restrictions vary by state, and not every business is eligible to form an LLC. Pass-through taxes are available to limited liability firms. This means that the owners’ personal tax filings include all corporate profits and losses. 

LLPs contain multiple owners, each of whom has limited personal liability for business-related debts. Licensed professionals, such as doctors and lawyers, primarily employ LLPs as part of their group practice. Altogether, an LLP partner is protected from accountability for another partner’s debts or lawsuits, ensuring that personal assets are never utilized to compensate for another’s misdeeds.

S corporation classification is meant for small to medium-sized domestic businesses. As a result, an S corporation may not have more than 100 stockholders. 

LLC vs LLP in California 

An LLC in California stands for a limited liability company. A major benefit of an LLC is the legal protection it offers. Because an LLC is considered a separate business entity, it creates a financial barrier between the owner and the company. This means that business creditors cannot go after an owner’s personal assets. You can think of an LLC as a hybrid between a partnership and a corporation. It affords the owners the same legal protections as a corporation but typically requires less paperwork and fees. Business owners are called members, and an LLC can be formed by one or multiple members.

A limited liability partnership is a formal framework that provides the partners with some legal protection from the obligations of the partnership. LLPs are widespread, chiefly, among licensed professionals such as accountants, attorneys, and architects. Some states prohibit licensed professionals from forming LLCs, and an LLP provides a mechanism to avoid unlimited liability for both corporate commitments and the carelessness of other partners. A minimum of two partners are required for an LLP, and the intricacies of business operations can be fleshed out in a partnership agreement. Partners must file an Application to Register a Limited Liability Partnership with the Secretary of State (SOS) to form a California LLP. If you are an attorney, you must register your LLP with the California State Bar after receiving SOS approval.

LLC vs LLP vs LP

An LLC vs LLP vs LP comparison compares three distinct types of organizations with distinct business structures. An LLC provides tax freedom as well as operational efficiency. An LLP combines the benefits of an LLC with those of a limited partnership. An LP is best recognized as a company with silent partners. Limited partnerships have one general partner who is in charge of management decisions and obligations. Other limited partners have no management or voting power. An LP’s partners are only liable for the amount they invested in the company. LPs are an excellent corporate structure to use when the goal is to generate operating money without giving up other rights, and they are a solid choice for time-sensitive initiatives.

The formation of an LP is similar to that of an LLP, with the following exceptions:

In contrast to a limited liability partnership agreement, occasionally, a limited partnership agreement is required.

  • The registered agent is usually the general partner.
  • A limited partnership certificate is required.
  • Insurance for workers’ compensation may be required.

What Is Better LLP or LLC? 

Your profession and state will influence whether you conduct your business as an LLC or an LLP. If you’re a professional who needs a license to do business, you should consider forming an LLP if your state allows it. If you are not a professional, an LLC is usually the best option.

Why Would You Choose an LLP Over an LLC?

Unlike an LLC (Limited Liability Company), all partners have limited liability protection, which means they are not personally liable for the debts and obligations of the LLP. This makes an LLP a good choice for businesses that involve multiple owners, as each partner has their own protected interests.

What’s One Advantage of Both an LLC and an LLP? 

Both LLPs and LLCs offer limited liability protection to business owners by separating business liabilities from personal liabilities.

What Is the Downside of an LLP? 

The fundamental disadvantage of an LLP is public transparency. Financial statements must be filed with Companies House and made public. The accounts may include income from members that they do not want to be made public. Income is taxable as such.

How Do You Fill Out an LLC Application? 

Creating an LLC

  • Give your company a name.
  • Choose your registered agent and provide an address to which legal documents can be forwarded.
  • Prepare and file the Articles of Incorporation.
  • Publish your Articles of Organization in two newspapers.
  • Make a business agreement.
  • The state will provide you with a certificate.
  • Obtain an Employer Identification Number (EIN).

How Is an LLP Formed? 

The LLP can be formed with no minimum capital contribution required from partners. Limited liability partnerships are legal entities in their own right. LLPs can so hold assets and incur liabilities in their own names. They can also negotiate, sue, and be sued in their own names.

How Many Different Kinds of LLCs Are There?

There are eight main kinds of LLCs. Domestic and foreign limited liability companies (LLCs) can be formed or registered in any state. Only in a few places are series LLCs, professional LLCs (PLLCs), low-profit LLCs (L3Cs), and nonprofit LLCs allowed.


In general, LLP owners are considered partners in an organization, whereas LLC owners are members. As a result, there are significant distinctions in how limited liability is recognized, how an LLC and an LLP are handled, and how each structure is taxed.

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