LLC or LLP: Which One is Better?

LLC or LLP Which is Better

Are you thinking about starting your own business? If so, you are likely to find yourself facing a number of important decisions. You may be in the throes of budgetary planning, looking at office space, and combing resumes for potential employees. In the nascent days of mapping out your business, you will also want to put some thought into how it should be structured. A common question that arises for new business owners is, between an LLC or LLP, which is better? While these two business structures contain many shared qualities, there are also stark differences that you will want to consider.

Depending on your industry and goals as a business, either option could make sense for you. By performing the proper due diligence, you can arrive at a more informed decision on how you wish to mold your business. Read on to learn more about these formation possibilities, as well as how you can complete your processing paperwork online.

What is a Limited Liability Company?

Limited Liability Companies (LLCs) are popular among entrepreneurs due to their unique tax privileges and liability protections. In an LLC, any profits that are generated by the business are not taxed until they pass through to its members. Because of this, an LLC is deemed to be a “pass-through” entity by the Internal Revenue Service (IRS). In more plain terms, an LLC is not taxed “twice”–members of the LLC will pay taxes to the IRS on their income only. 

An LLC is also built around the concept of “limited liability.” In the event that your business is hit with costly lawsuits, or faces bankruptcy, members of your LLC will be able to protect their personal assets against legal judgments. As you can likely surmise, this creates a strong appeal for potential entrepreneurs, as it can greatly mitigate some of the inherent risks in starting a business.

The Concept of a Limited Liability Partnership

A Limited Liability Partnership (LLP) is similar to an LLC in a number of ways. An LLP enjoys the same “flow-through” tax benefits as an LLC, with partners only paying tax on their personal salaries. LLPs also feature limited liability protection, though with a slight difference. While partners can protect their assets against the liabilities of their business, individual partners can still be found liable. If, for example, a partner in a medical practice demonstrates negligence, they can be held accountable for said actions while the other partners and, more importantly, the business cannot.

LLC or LLP, Which is Better? It Depends

Determining whether an LLP or LLC is right for your business will depend on a few items. Firstly, you should know that LLPs are not available in all 50 states. LLPs are also only available to licensed professionals in some places. Doctors, lawyers, architects, dentists, and accountants tend to favor LLPs because of their liability structure. Also, in some places, licensed professionals can only form LLPs.

Generally speaking, an LLC will have a bit more flexibility in its management structure and requirements. Unless you are offering specialized professional service, an LLC probably makes more sense for your operation.

LLC or LLP Which is Better

Submit Your Documents Online Today

Whether you are forming an LLC or an LLP, Corporation Center can help. We offer easy-to-complete web forms to create your LLC or LLP in any state in the U.S. To learn more, reach out to one of our experienced customer service agents today.