According to the Small Business Administration, LLP stands for Limited Liability Partnership and LLC means Limited Liability Corporation. To know the difference between an LLC and LLP, it is important to understand the differences in business structure and tax implications of a partnership versus that of a corporation.
When planning a business, it is important to decide which structure to use and how much tax liability each person will be responsible for. Planning ahead for possible financial crisis is extremely important for new businesses and protecting the assets and legal liability of the ownership can be done by knowing the difference between an LLC and LLP and then making the best decision in how the company will be structured.
A Partnership allows two or more owners to have more direct control over the business than a corporation. However, when the business has problems, the owners are also more responsible for these difficulties legally. Each partner is equally responsible for their share of ownership as well as for the other partners' responsibilities. The law does not see a legal difference between the owners and the company. LLPs limit the amount of investment of each partner and legal responsibility is equal to the amount invested should a financial crisis occur. The amount of management input is also limited by each partner accordingly. This can help protect an individual's personal assets. When the partnership ends, the business dissolves. Retail and service businesses do not qualify for this structure and not all states recognize the LLP designation, so be sure to check individual state laws.
Corporations ensure the business is seen as a separate entity from the individual owners, and owners are considered shareholders of the company. They must designate a board of directors to oversee major decisions, and the board continues to run the corporation after the original ownership has left. The LLC permits owners to be on the board and combines the limited liability aspects of the corporation with the tax benefits and flexible structure of the partnership. The LLC's life is determined when the corporation's papers are filed with the IRS and owners can vote to continue or dissolve the corporation at the end of the contract. LLCs are recognized by most states and cost more to incorporate than LLPs.
The IRS has all the tax forms online that a business needs for no charge as well as specific tax information to further explain the difference between an LLC and LLP.