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What is the difference between an LLP and an LLC?

On Behalf of | Feb 4, 2020 | Business Law |

Limited liability partnerships and limited liability companies are two types of business structures. Because their names sound similar, you may confuse the two. However, while they are similar in some respects, explains that there are also some important differences between them. 

An LLP may have more in common with a general partnership than with an LLC. Like a general partnership, an LLP requires at least two partners who own and run the business together. An LLC requires a minimum of one owner, although it can have more. 

Both an LLC and an LLP protect the personal assets of their owners by limiting liability. An LLC has flexibility when it comes to taxation. Owners may pay corporate taxes on the company as a separate entity, or they can choose to report business profits on their personal income tax returns. In this way, an LLC is similar to a sole proprietorship as it relates to the operational flexibility it offers. 

To maintain business status, an LLP and an LLC must each pay annual fees and file annual reports. For an LLP, there is an additional requirement to carry liability insurance. An LLC may also carry liability insurance, but this is not a requirement. 

Regardless of what your business does, you can choose to structure it as either an LLP or an LLC. However, owners of certain types of businesses tend to favor certain structures over others. For example, LLPs are very common among law firms or accounting firms in which professional partnerships are customary. Small business owners of all types tend to favor LLCs.