Recently many people have decided to venture into business as a source of living. Many prefer being self-employed as there are inadequate job opportunities.
There are various forms of business. One needs to sit down and access the form of business he or she would like to venture into.
LLC and LLP are some forms of business that people venture into businesses. LLC stands for Limited Liability Company while LLP stands for Limited Liability Partnership.
Both are simple to start. Their formation is also easy. Both must keep good business management records. They should also record decision-making meetings.
So, what is the main difference between LLC and LLP? LLC can be businesses of all kinds while LLP is a professional business.
For information about the difference between LLC and LLP in tabular form, continue reading the article. You will also get to learn of the similarities.
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Comparison Table (LLC vs LLP)
|Ownership||It is owned by one or more individuals.||It is restricted to specific types of owners.|
|Formation||It must an article of association for it to be formed.||It does not require an article of the association before formation.|
|Management||It can be managed by individual members or hire management from outside.||It is managed by a managing partner.|
|Limited liability protection||Individuals are all protected from personal liability for any debt.||Partners are personally liable.|
|Taxation||It can opt-out to be taxed as a sole proprietor, partnership, or corporation.||It must file as a partnership.|
|Legal protection||You can expect widespread protection when it comes to liability but are not fully protected from the actions of other members.||It provides protection from a partner’s wrongdoings.|
What is LLC?
LLC is a Limited Liability Company which is a separate business entity that can be owned by either one or more owners.
The owners are referred to as members. Before the commencement of its operations, it is required to file the appropriate paperwork.
It includes filing articles of incorporation, paying filing fees, and creating an operating agreement. After formation, the business becomes a separate entity from its owners.
The LLC owns the business property, bank account and has its own tax identification number. They provide the most liability protection to their members.
They have two ways of management. It can either be managed by the individual members themselves directly or it can hire out management from outside.
LLC is a preference for many small businesses as it is flexible for ownership and tax purposes. The registration of businesses varies with the state.
What is LLP?
LLP is a limited liability partnership form of business. It is essentially a general partnership with the addition of limited liability for one or more partners.
When two or more people do business together, they form a general partnership and do not require any legal filings unlike in limited liability companies.
It is a separate business entity. It must have a managing partner who can bear the liability for the LLP’s actions.
Most LLPs are professional businesses. Partners are liable when it applies to their own negligence. A partner cannot be held responsible for another person’s actions.
The LLPs are restricted to a specific types of owners. It considers individuals in certain types of professions depending on the state.
The management structure is determined by the partnership agreement. The agreement contains the roles of each partner, their financial contributions, profit, and loss distribution.
Main Difference between LLC and LLP
- LLC is formed by members while LLP is formed by partners.
- LLC must have an article of the association before is formed while LLP does not require an article of the association before its formation.
- LLC can be managed by either individual members or hire management from outside while the partnership is managed by a managing partner.
- LLC protects its members from personal liability for any debt while LLP does not protect its partners from personal liability.
- LLC can opt-out to be taxed as a sole proprietor, partnership, or corporation while LLP must file as a partnership
- LLC is considered as any kind of business while LLP is a professional business.
Similarities between LLC and LLP
- Both are formed by two or more people.
- Both avoid corporate taxes and pay personal income tax.
- Both do not directly pay income tax.
- Both have legal protection.
- They both have an operating document.
LLC and LLP are forms of business that are formed by two people and above. The documents outline the responsibility of each member.
However, these two are not the same. The main difference between LLC and LLP is that LLC is considered a business of all kinds while LLP is a professional business.
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