LLC or LLP: Which is Better for Your Business?

llc or llp which is better

As a business owner, you are faced with a number of challenging decisions on a daily basis. From making approvals on your marketing strategy, to hiring choices, to which vendors you will work with, it seems like every decision you make is consequential. Of course, that is just one of the trade-offs to the path of entrepreneurship. In exchange for the stress and long hours, you potentially have uncapped growth and earning potential. In order to maximize your chances for success, it is up to you as a business owner to do everything you can to position your organization to flourish. One way in which you can do this is by giving your company a legal structure, perhaps in the form of a limited liability company (LLC) or a limited liability partnership (LLP). While these two entities may sound similar, they do have some key distinctions that you will want to weigh when asking yourself, “LLC or LLP, which is better for me?”

It is important to consider that the legal structure you ultimately decide on should account for the goals, industry, and long-term plans of your business. Also, you are not necessarily tied to starting either an LLC or LLP–there are a number of different legal structures out there, and what is available to you will depend on your state. Some business owners, particularly those with smaller, part-time operations, may find that sole proprietorship works just fine for their needs. Other companies may want to file articles of incorporation, as it allows them to offer shares of ownership in order to raise capital. LLCs, however, are incredibly common, and LLPs, where they are available, are not too far behind. 

Why Consider a Limited Liability Company?

Sometimes, in the business world, simplicity is key. If you have worked as a professional just about anywhere, you have probably noticed that the letters “LLC” tend to follow the names of companies you work with. This is not really a surprise, as LLCs are very popular among new and seasoned business owners alike, and they are available in all 50 states. 

One reason LLCs are such a common choice is that they are relatively painless to create. To do this, you will typically need to choose a name that is not already registered as an LLC in your state and appoint a registered agent to receive all legal correspondence on behalf of your business. With a handful of details in place, you can then submit your articles of organization (some states call this a certificate of formation) to your local Secretary of State’s office.

When you create a limited liability company, you will receive “pass-through” status from the Internal Revenue Service (IRS). This means that gains, losses, credits, and deductions can be passed from your business directly to the members of the LLC, which can greatly reduce your tax obligations. An LLC will also offer limited liability protection to its members. This means that in the event your business goes bankrupt or is sued, you and the other members will be able to protect your personal assets from any potential legal judgments. 

Deciding on a Limited Liability Partnership

Working with a partner or two is not uncommon in the business world. It can allow you to utilize the expertise of others while applying your own strengths, working together toward the common goal of launching a successful enterprise. Any time two or more people go into business together, this can be considered a general partnership (GP). While a GP can be made official on fairly informal terms–a handshake or verbal agreement, for example–some partnerships seek to add an additional layer of legal protection. The limited liability partnership combines the benefits of an LLC with certain aspects of a partnership.

While an LLP enjoys the same “pass-through” status as an LLC, it does differ a bit in terms of its limited liability protections. In an LLP, if one partner is found liable, they can be held to account, while the other partners can shield their assets and protect their business. This makes LLPs a logical fit for licensed professionals such as doctors, lawyers, and accountants. LLPs are not available everywhere, and in some states, licensed professionals are only allowed to create LLPs.

llc or llp which is better

LLC or LLP: Which is Better? It Depends

So, LLC or LLP, which is better for your business? The answer to that question will largely come down to your industry, and what state you are in. If you are operating, say, a medical or legal practice, you may need to create a limited liability partnership. Most other businesses, however, may find that they benefit from creating an LLC. Of course, you are not bound to those options–you may want to look closer at S- or C-corporation, for example.

No matter what you decide, at Corporation Center, we have the online forms you need to get your business up and running. To learn more, take a few minutes to explore our website, or visit our Frequently Asked Questions page. You can also contact us by phone or email with any questions you may have.