Difference Between LLC And LLP | LegalZoom

LLC vs. LLP FAQs

What is the main difference between an LLC and an LLP?

The primary difference between an LLC and an LLP lies in ownership requirements and liability protection scope. LLCs can have a single owner (member) or multiple owners and provide broad protection from business debts and claims. LLPs require at least two partners and offer specific protection from other partners' professional negligence or misconduct.

Can a single person form an LLP?

No, LLPs require at least two partners by definition. If you're a solo professional seeking liability protection, consider forming a single-member LLC or, in states that allow it, a professional limited liability company (PLLC). This type of business structure provides similar benefits to LLPs while accommodating single-owner businesses.

Are LLPs only for professionals?

While LLPs are commonly used by licensed professionals such as lawyers, accountants, and doctors, availability varies by state. Some states restrict LLP formation to specific licensed professions, while others allow broader use. 

How are LLCs and LLPs taxed differently?

Both LLCs and LLPs typically enjoy pass-through taxation, meaning business profits and losses flow through to owners' personal tax returns without entity-level taxation. Each person will pay income taxes. However, LLC members may face self-employment taxes on their share of profits, and LLP partners may face the same tax on guaranteed payments. Single-member LLCs are treated as sole proprietorships for tax purposes, unless they elect another treatment.

Can I convert from an LLP to an LLC?

Conversion possibilities vary by state, with some allowing direct conversion while others require dissolution and reformation. The process can be complex, involving tax implications, creditor notifications, and regulatory approvals. Consult with legal and tax professionals before attempting any business structure conversion to understand the full implications and requirements.

Do I need an attorney to form an LLC or LLP?

While you can form both LLCs and LLPs without an attorney, professional guidance is often valuable, particularly for LLPs, with their complex professional and regulatory requirements. Attorneys can help ensure compliance with state regulations, draft comprehensive operating or partnership agreements, and address industry-specific and tax considerations that could affect your liability protection and operational success.

Can LLCs and LLPs operate in multiple states?

Yes, both business structures can operate across state lines by registering as foreign entities in other states. You'll need to create a separate legal entity in the other states. Multistate LLC or LLP operations often require careful legal planning to ensure proper registration and liability protection and to confirm that their type of business or industry isn’t restricted in another state.

Roberta Codemo contributed to this article.