What Are the Differences Between an LLP Company and Partnership
What Are the Differences Between LLP and Partnership
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Choosing the right business structure is an important decision that can have long-term consequences for your company. Two of the most common structures are limited liability companies (LLCs) and limited liability partnerships (LLPs). Both offer owners limited liability protection, but there are a few differences between them that can affect your company's legal and tax status.
The main difference between LLP and partnership is that a LLP has a distinct legal existence separate from its partners. Hence, it has perpetual succession even after the death of any partner. An LLP has the flexibility to have any number of partners and can be run by all or by a single authorised partner on behalf of others. The partners can sign documents either physically or digitally. In case of a physical signature, the signature has to be accompanied by a seal which is unique to LLPs.
In terms of management, LLPs operate like general partnerships and require that the management duties be equally divided among partners. However, if one partner injures someone or does something fraudulent, personally guarantees a bank loan or debt on which the company defaults, or otherwise doesn't act legally or keep personal affairs separate from the business, a court may not enforce its limited liability protection.
In terms of taxes, LLPs are considered pass-through entities and therefore all profits are passed through to the partners who report them on their personal income tax returns. However, some states don't allow pass-through taxation and require LLPs to file as corporations or self-employment entities instead.
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