Limited Liability Companies (LLC) and Limited Liability Partnerships (LLP) combine the liability protection of a corporation with aspects of a partnership. LLCs and LLPs allow their partners to pass income and tax liabilities to their personal income taxes.
LLPs are required to have a minimum of two partners. LLCs may be formed with a single owner. Both LLCs and LLPs may have an unlimited number of partners or members.
In order to create an LLP, you must file a single form with the state where the business is located. To form an LLC, you'll be required to publish an announcement of your company in a local publication. In addition, you'll be required to file articles of organization with the appropriate state agency.
Having a partnership agreement in place helps partners of an LLP understand their role and responsibility in the business. For an LLC, an operating agreement and company bylaws establish ownership interests, operating procedures and rules that govern the company.
If you form an LLP in states like North Carolina and West Virginia, you may have reduced liability protection. This means your personal assets may be at risk if business creditors can't recover funds from your business assets. Other states allow the same liability protection afforded to an LLC. Partners of an LLP are protected in situations where fellow partners are exposed to malpractice claims.
Types of Businesses
In certain states like California and New York, an LLP must be formed by professionals such as architects and physicians. Most other types of businesses that don't render professional services, are better suited for the LLC structure.