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Difference Between LLC and LLPThere are a number of different business entities a person can choose from for their business idea. In this article, we take a look at the difference between an LLC and LLP. Let’s start with the basics. An LLC is a limited liability company. It provides the shield from liability found with a corporation, but the tax and corporate compliance flexibility found with a partnership. The LLC is very popular in California because it is easy to run and the partnership tax basis is viewed favorably by most accountants. An LLP is a limited liability partnership. It is a unique form of a general partnership. In California, it is the entity of choice for many professional partnerships including lawyers, accountants and architects. Why? Well, the organization comes with a unique liability shield. Essentially, each partner is shielded from liability for the negligent acts of the other partners. However, that partner is liable for the contractual obligations of the partnership and any negligent acts by someone under their control. Let’s take a look. Accountant Smith joins three other CPAs in a limited liability partnership. One of the partners is CPA Thomas. Thomas is sued for malpractice. CPA Smith cannot be found jointly liable for any judgment because of the LLP. Ah, but he can be found liable jointly liable for the lease the partnership signed. He is also responsible if his assistant Mary is accused of doing something negligent. Obviously, there are niches and exceptions, but this is the general idea when discussing the LLP. So, what is the difference between the LLC and LLP in California? Well, you can see the basic differences above, but there is another more noted aspect. The LLP is only available to certain professions. Those professions are, in turn, barred from forming LLCs in California. So, should you form an LLC or an LLP? Well, there really isn’t much of a choice in most cases. In California, you are usually limited to one or the other depending on the nature of your business. ******************* Nothing in this article is intended to create an attorney-client relationship. Please contact me if you have any questions. |
