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The difference between an LLP and an LLC

On Behalf of | Nov 22, 2014 | Business Formation & Planning |

Limited liability partnerships and limited liability companies are two similar but distinct types of business entity. Neither one is required to pay corporate taxes; instead, taxation falls upon the individual partners or members. Both entities are very flexible in their structure, allowing them to fit the needs of many types of company, but key differences between them set the two types apart.

In a limited liability partnership, one or more partners are legally exposed, bearing responsibility as a managing partner for the business entity as in a simple partnership. An LLP can also have junior or silent partners, however. These individuals are liable for only their investment. They are not engaged in managerial activities and thus avoid responsibility for the actions of the company management. LLPs are most commonly professional partnerships, such as law firms, accounting firms, joint medical practices and architecture firms.

Unlike LLPs, limited liability companies are allowed to have corporations among their members. An LLC also provides liability protection for all members as in a full corporation. This halfway-point between partnership and corporation includes the tax benefits of the former and the legal protection of the latter, making it an attractive business structure for small companies of all varieties.

Those engaged in the process of creating a start-up company or performing a business merger need to determine whether an LLP or an LLC is a better fit for their goals, business structure, and potential liability. Choosing between them often comes down to the type of business it is, but other factors may sometimes sway the best result. A business law attorney could provide valuable advice to those in a joint venture, helping the members decide whether a partnership or a company structure is best for them.

Source: Houston Chronicle, “Limited Liability Partnership Vs. Limited Liability Company“, Eric Feigenbaum, November 18, 2014


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