Most businesses in the United States are made as limited liability companies or LLCs for short. But, many companies are choosing to change to limited liability partnerships, or LLPs, as a tax and legal move.
While similar incomes may be gained with both types of companies, there are some differences. But, more importantly, the question remains: what’s the difference between LLP vs LLC?
If you are curious as to what the differences may be and which one is better and more beneficial to your business, then continue reading. This article will bring the differences into perspective.
What is an LLP?
A limited liability partnership (LLP) is a business structure in the United States wherein partners share liabilities equally among themselves. This means that each business partner’s liability is limited to their actions – they are not responsible for the debts or liabilities of the other partners.
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What is an LLC?
While an LLC, or limited liability company, is a business structure in which members can have varying degrees of liability, they combine the personal asset protection of a corporation with the tax benefits and operational flexibility of a partnership.
LLCs are relatively new business entities, having only become popular in the United States within the last three decades.
Key Differences Between LLP and LLC
One major difference is that LLPs are only available to certain types of businesses, such as law firms, accounting firms, and medical practices. In an LLP, all partners are required to share equal liability for the debts and obligations of the business. This is not the case in an LLC where members can have varying degrees of liability.
LLP is a partnership structure that is required to have at least two partners while LLC is a corporate structure or can have just one owner. This means that LLPs are taxed as partnerships they are subject to different tax rules while LLCs are taxed as corporations and they are not as flexible when it comes to operational matters.
Benefits of LLP vs LLC
An LLP is a business structure in which partners share in the profits and losses of the business, but each partner’s liability is limited to their investments.
This means that if the business fails, creditors can only go after the assets of the LLP, and not the personal assets of the partners. This is the main advantage to form an LLP vs. LLC.
In an LLC, all of the members are personally liable for the debts and liabilities of the business. This means that if the business fails, creditors can go after the personal assets of the members.
Business Structure That is Right for You
So, which business structure is right for you? It’s important to understand the implications of each. If you’re looking for the most flexibility and the best tax advantages, an LLC may be the way to go.
But if you want the simplicity of a partnership with the added protection of limited liability, an LLP may be the better choice.
If you’re trying to decide which business structure is right for you between an LLP vs LLC, consult with an experienced business attorney to ensure you’re making the best decision for your business.
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