Key Takeaways

  • The main difference between an LLP and LLC lies in liability scope and management structure—LLCs offer broader protection and flexibility, while LLPs are often restricted to licensed professionals.
  • An LLC can be managed by members or appointed managers, while an LLP typically requires partners to share management responsibilities equally.
  • LLP partners are protected from liabilities caused by other partners’ negligence, whereas LLC members are protected from all business debts and claims.
  • Both entities enjoy pass-through taxation, but LLCs can choose corporate taxation for potential savings.
  • LLPs are often preferred by professionals like lawyers, accountants, and architects; LLCs are suitable for a wide variety of businesses.
  • Formation and compliance requirements vary by state, and some states don’t permit LLPs at all.
  • Choosing between a limited liability partnership vs LLC depends on your business type, number of owners, and state-specific rules.

What Is the Difference Between LLP and LLC?

The difference between LLP and LLC is an LLC is a limited liability company and an LLP is a limited liability partnership.

According to the government, specifically the IRS, an LLC is a business organization that is formed lawfully under the state by filing articles of organization. In an LLC, there are two ways to set up the company's management:

  1. The individual members can manage it directly.
  2. They can hire outside management that does not have any stake in the business.

Both LLCs and LLPs have similar abilities to limit the liability of each partner or member involved in the business. However, there are also some differences between the two entities. LLPs must have a managing partner who can bear the liability for the LLP's actions.

While all states allow LLCs to form, only about 40 states allow for the existence and formation of LLPs. Most LLPs are professional businesses, while LLCs can be businesses of all kinds.

Choosing Between a Limited Liability Partnership vs LLC

When comparing a limited liability partnership vs LLC, the right choice depends on your business goals and structure. An LLP works best for professional groups—such as law firms or accounting firms—where multiple partners actively manage the business while maintaining individual protection from each other’s mistakes. By contrast, an LLC is ideal for entrepreneurs and small business owners looking for greater operational flexibility. It can have one or multiple members, does not require professional licensing, and can separate management duties from ownership.

An LLC also offers more flexibility in profit distribution—members can divide profits in proportions that differ from ownership percentages—while LLP partners must distribute profits according to their partnership agreement. Additionally, many states regulate LLP formation more strictly than LLCs, often requiring registration with professional licensing boards.

What Is the Difference in Management Structures?

One of the biggest differences between an LLC and an LLP is how the entity is allowed to be managed. An LLC can be managed in two ways; the LLP is run similarly to a partnership. The business partners basically are equally responsible for managing the business.

Ownership and Decision-Making Differences

In an LLP, all partners generally have equal management rights unless otherwise stated in a partnership agreement. This structure encourages collaboration but can slow decision-making when partners disagree. An LLC, on the other hand, can be either member-managed—where all owners participate in daily decisions—or manager-managed, allowing members to appoint someone (possibly an outsider) to oversee operations. This flexibility makes the LLC structure better suited for scaling businesses or investors seeking a hands-off approach.

LLCs can also more easily add new members or transfer ownership stakes compared to LLPs, which often restrict such changes without unanimous partner consent.

What Is the Difference in Limited Liability Protection?

Both LLC and LLP businesses allow for limited liability for all members and partners. The protections are not equal under the two different entities. With an LLC, the individuals are all protected from personal liability for any debts or lawsuits filed against the business. Creditors and individuals who have been directly harmed by the business can't sue any of the business members for debts.

When it comes to an LLP, partners are personally liable, but only in so far as it applies to their own negligence. One partner will not be held responsible for the other's actions. This means each individual has liability protection from wrongs committed by the other partner. Liability only involves the partner's direct financial investment.

Personal liability for debts is allowed in some states when an LLP is developed.

Personal Liability in Practice

While both entities protect owners from personal liability, the extent of protection differs. In an LLC, members are shielded from virtually all company debts and lawsuits unless they personally guarantee loans or engage in wrongful acts.In an LLP, liability protection is narrower: partners aren’t responsible for another partner’s negligence or misconduct but may still be liable for their own actions or for certain partnership debts, depending on state law. For example, if an LLP partner commits malpractice, the other partners’ personal assets are protected—but the partnership’s assets could still be at risk. This makes LLPs especially useful for professionals in shared practices who want liability separation among partners.

What Is the Difference in Tax Benefits?

The IRS does not see LLCs or LLPs as businesses when it comes to taxation. This means they do not directly pay income taxes. However, tax documents must be created for the business and sent to the IRS.

The business earnings pass directly to the partners or the members, and each individual must report the earnings on their personal tax forms. Taking this into consideration, it is imperative to pick the business structure that offers the best protection and the fewest tax and legal consequences for its members.

Flexibility in Tax Election

Both LLPs and LLCs are pass-through entities by default, meaning profits and losses flow directly to the owners’ personal tax returns. However, LLCs offer greater tax flexibility. They can elect to be taxed as a sole proprietorship, partnership, S corporation, or C corporation, depending on their financial strategy. This flexibility allows business owners to reduce self-employment taxes or take advantage of corporate tax rates when beneficial. LLPs, by contrast, typically remain taxed as partnerships, with profits divided based on ownership shares. Some states may require LLP partners to pay self-employment taxes on all business income.

Legal Protection

LLCs and LLPs are considered “pass-through” businesses due to the way earnings move through the business to the members or partners. This allows them to avoid corporate taxes and pay personal income taxes instead. If corporate taxes were charged, this would cause a double taxation issue in which taxes must be paid on the earnings twice.

Formations and Operation

There are not many differences in the way you form an LLP and an LLC.

State-Specific Rules and Registration Requirements

Formation procedures for LLPs and LLCs vary by state. LLCs must file Articles of Organization, while LLPs file Certificates of Limited Liability Partnership—often limited to professionals such as attorneys or engineers In Texas, for instance, LLPs must carry a minimum amount of professional liability insurance or financial responsibility coverage. LLCs, however, can be created by almost any business owner, regardless of profession. Both entities require compliance with annual reports and fees, but LLCs generally face more flexible operational rules, including fewer restrictions on membership and fewer reporting obligations.

Considerations

State laws do dictate who is and is not allowed to form an LLC and an LLP. Typically, a single person can form an LLC, and that individual can be a business person or anyone else. With an LLP, the organization is limited to people who are licensed professionals in their distinctive fields.

Legal Protections

While it might seem like there are few differences between LLCs and LLPs, there are some things to note. Only an LLP will provide protection from a partner's wrongdoing, and the business is typically a professional one.

When it comes to an LLC, you can expect more widespread protection when it comes to liability. The liability will be limited, but you will not be fully protected from the actions of the other members, like in an LLP. While the protections are available, LLP members might still need to pay back business debts that cannot be paid back to creditors due to a failing business.

Compliance and Risk Management

Both LLPs and LLCs must adhere to state-level reporting and registration requirements to maintain their liability protections. Failing to file annual reports or maintain proper records can lead to administrative dissolution. LLCs must also uphold a clear distinction between personal and business finances to preserve the “corporate veil.” LLPs, meanwhile, often need to carry malpractice insurance or proof of financial responsibility, especially in professions with fiduciary duties. Maintaining compliance not only preserves liability protection but also strengthens credibility when securing financing or professional partnerships.

The Bottom Line

In general, LLCs and LLPs combine many of the advantages and disadvantages of partnerships, sole proprietorships, and corporations. Consider the benefits and drawbacks of each entity to decide which is best for your business structure.

How to Decide Which Entity Is Right for You

When choosing between an LLP and LLC, consider the nature of your business, the number of owners, and your liability comfort level. If you’re part of a licensed profession—such as a law, medical, or accounting firm—an LLP may provide the right balance between shared management and personal protection. For broader industries or startups seeking investor flexibility and growth potential, an LLC offers more operational and tax advantages. Because state rules can differ significantly, consulting a business attorney can help you identify which structure aligns best with your goals. You can find experienced business formation attorneys on UpCounsel to guide you through the process.

Pros and Cons of LLP vs LLC

Advantages of an LLP:

  • Liability protection against other partners’ negligence.
  • Direct management involvement by all partners.
  • Typically designed for professionals like lawyers or accountants.

Disadvantages of an LLP:

  • Not available in all states.
  • Limited flexibility in taxation and ownership changes.
  • Requires annual renewal and may need professional licensing.

Advantages of an LLC:

  • Broader liability protection covering business debts and lawsuits.
  • Flexible ownership, management, and tax structure options.
  • Can be formed by a single owner (single-member LLC).

Disadvantages of an LLC:

  • Some states impose franchise or annual fees.
  • More formal recordkeeping than partnerships.
  • Additional paperwork if taxed as a corporation.

Frequently Asked Questions

  1. Is an LLP better than an LLC for professionals?
    Yes, LLPs are often preferred by licensed professionals like lawyers or accountants because they provide liability protection between partners.
  2. Can a single person form an LLP?
    No, an LLP typically requires at least two partners. A single business owner should consider forming an LLC instead.
  3. Which offers more tax flexibility—LLP or LLC?
    An LLC offers more flexibility because it can elect to be taxed as a partnership, S corporation, or C corporation.
  4. Are LLPs allowed in every state?
    No, not all states allow LLPs, and some restrict them to certain professions. Always verify state-specific regulations before filing.
  5. What is the main difference between a limited liability partnership vs LLC?
    An LLP provides liability protection between partners but is generally limited to professionals, while an LLC offers broader protection and operational flexibility for most businesses.

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