Limited partnerships (LPs) and limited liability partnerships (LLPs) both refer to businesses that are owned by more than one individual. They are subcategories of general partnership businesses in which owners enjoy a certain amount of liability protection.
But there’s a lot that differentiates LPs and LLPs from general partnerships, and a lot that distinguishes them from each other. Are you wondering about the difference between LP and LLP? Read on to find out more.
So, what is a partnership? A limited partnership is a type of company that has multiple owners. In an LP, at least one owner acts as general partner, and the other or other business entity partners act as limited partners.
But what do those terms mean?
Well, for the general partner, it means:
Limited partners, on the other hand, enjoy far greater liability protection—they can’t lose more than their personal contribution to the company and their personal assets are safe.
That said, they also play far less active roles within the company. In fact, limited partners must be diligent about limiting their participation or they could risk losing their diminished liability.
A limited liability partnership describes a business owned by more than one person, none of whom have unlimited liability for business debts. Instead, each limited partner’s liability is limited to the amount of their personal investment in the company.
Under LLPs, each limited partner typically plays a fairly active role in business operations. However, each individual partner is protected against the business debt of the other partners.
LLPs are a favored business structure for many businesses in professional fields, such as:
LLPs allow individual business owners to share business costs, expenses, and resources, yet offer individual protections.
Like general partnerships or even limited liability companies, LPs and LLPs are formed at the state level. The partnership agreement process for registering your lp vs llp will vary depending on the state you live in, so it’s a good idea to check with your secretary of state’s office for specifics.
That said, there are some aspects you can expect to remain similar across state lines.
Once your application is approved, you’ll also need to obtain an Employer Identification Number from the IRS. You’ll also need to acquire any business permits or licenses that might be required by your state.
You may be wondering about how are partnerships taxed or structured. Although the process for forming a limited partnership vs limited liability partnership might be similar, they each offer different potential business structures.
To avoid having to set up a partnership in person, simply fill out this EIN form to apply for a partnership online right now.