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The Difference Between LLPs and LLCs


What is a limited liability corporation (LLC)?

A limited liability corporation is a type of organization that provides the owners of the company with limited liability and they typically have fewer than 100 owners. One significant advantage over an S corporation is that an LLC can own more than 80% of another corporation or company. An LLC is taxed similarly to an S Corp where the tax liabilities pass through to the individual owners.

What is a limited liability partnership (LLP)?

A Limited Liability Partnership (LLP) is a form of general partnership.  An LLP is set up according to the general partnership laws of the state.  Each partner is protected from personal liability of debts and obligations of the LLP.  State LLP statutes are different from state to state and certain businesses are not permitted to form LLP’s.  Banks and insurance companies are not allowed to establish an LLP.

What are the Differences?

LLC's protect all owner's from individual liability while LLP's only protect partners from liability caused by other partners not liability actions caused by themselves. It is easier to form an LLP than an LLC which have more administrative burdens. LLC's can have shareholders while LLP's have partners. LLC's can sell stock. Another difference is that an LLP must have at least 2 partners whereas a LLC can have only one owner.

Advantages and Disadvantages of Each

Advantages of both include the fact that they have pass through taxation, meaning that members of the LLP or LLC are not taxed twice as a business and as individuals.   Another advantage of the LLC includes personal liability protection.  This along with the pass through taxation, make this a great option for group practices, especially in law and medicine, because it insulates the members' from personal liability in case something occurs which may cause the business to have to pay out a lot of money. 

A disadvantage of an LLP is that in most states they do not provide personal liability protection. A disadvantage of an LLC includes the fact that most states have different rules for LLCs so uniformity is lost.

 


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