Difference Between LP and LLP

Both a limited partnership (LP) and a limited liability partnership (LLP) offer limited liability for certain partners. They are both distinguishable from a General Partnership (another kind of business entity) because of the ability to shield some partners from liability. The primary difference between the two is who gets limited liability and who does not. This article explores what sets an LP and an LLP apart.


An LP has one or more general partners and one or more limited partners. The general partners participate in management and have 100% liability for partnership obligations. Limited partners cannot participate in the management and have no liability for partnership obligations beyond their capital contributions, protecting them against personal liability for the partnership's debts and other obligations. They do, however, receive a share of the profits for their involvement as limited partners.

Limited Liability Partnerships (LLP) offer the same tax advantages as a general partnership but offer some protection for partners' personal assets by limiting their liability to that of their interest in the company only. All partners are allowed to manage the business like in a general partnership; however, a formal agreement is required for this business type. This construction goes on all partners from subjecting their personal assets to the business liabilities. For example, Jack and Jill are attorneys and set up a limited liability partnership to share in each others' success. Their firm is sued by a former client, but neither Jack nor Jill have personal assets at risk.

Formation of an LP/LLP

Each state has its own rules governing the formation of an LP or LLP. Most commonly, you need to file documents with the appropriate state authority and pay the associated filing fee. The filing documents usually require some basic information, such as the name and address of the business, its agent for service of process and the nature of the business. Many states also require an annual report with updated information to be filed with the state.

Benefits of an LP or LLP

There are pros and cons of starting a limited partnership or limited liability partnership. Some of the pros are, first and most importantly, limited liability for the limited partners in an LP. These partners can contribute the capital in a partnership without risking their personal assets. In an LLP, the liability is limited only for partners who did not participate in creating the problem or the debt.

Also, there is no double taxation in LP’s and LLP’s.  Double taxation happens in corporations because the corporation pays income taxes on its profits, and then uses the remaining profits to pay dividends to shareholders, who again pay their own individual income tax on it.  Thus, the same profit gets taxed twice.  However, with partnerships, the partners themselves are taxed on their personal income tax returns for their share of ownership in the partnership, which usually amounts to less taxation.

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