How does an LLC differ from an LLP?
An LLC and an LLP look structurally similar, but there are many differences between the two kinds of business entities. Perhaps you’re thinking of starting your own business, or maybe you’re just curious to know what those letters really mean when you see them after a business name. Continue reading to find out the main differences between these kinds of business structures.
“LLC” stands for “Limited Liability Company.” Like the name describes, this kind of business organization structure is intended to protect the owners (called members) of the company from individual legal liability for the company’s debts or actions. If structured and managed properly, each LLC member has limited personal liability for the company. For example, if a limited liability company were to go bankrupt, the members of an LLC would not lose their personal property. An LLC also reports its income or loss through the tax records of each member. There must be at least one member to create an LLC. However, there is no limit to the number of members that an LLC can have. The LLC must be registered with the Wisconsin Department of Financial Institutions and the members must create both “Articles of Organization” and an “Operating Agreement” which establish their relationship within the business structure of the Company.
“LLP” stands for “Limited Liability Partnership.” The owners of this type of business entity are called limited partners. An LLP is also intended to protect the limited partners from individual legal liability. In an LLP, a limited partner is generally only legally liable for up to the amount of money he or she invested in the partnership. To create an LLP, there must be at least two limited partners. There is no limit to the number of limited partners that an LLP can have. The terms of an LLP are more flexible than an LLC and require fewer supporting documents. The limited partnership must also be registered with the Wisconsin Department of Financial Institutions and the limited partners must draft a “Limited Liability Partnership Agreement” to create this kind of business relationship. If one partner decides to leave the LLP, the limited liability partnership can continue without the need to dissolve the entity and create a new one.
Now that you know the main differences between these two ways to organize a business, you may have questions about your own potential or existing small business. Contact an attorney at Kelly & Brand, Attorneys at Law, LLC who can help you determine which kind of business organization plan is right for your situation. We look forward to helping you traverse through potentially complicated business forms.