LLC vs. LLP?A Guide to Choosing the Best Structure

Taxation

• LLC: By default, LLCs are pass-through entities—profits and losses “pass through” to members’ personal tax returns, avoiding double taxation. LLCs can also choose to be taxed as an S Corporation, C Corporation, or sole proprietorship, depending on their financial goals.
  
  
• LLP: LLPs are also pass-through entities, making them tax-efficient for partners who split profits evenly. The company or partnership doesn’t pay taxes. Instead, profits and losses are reflected on partners’ personal income tax returns.

Management

• LLC: An LLC can be member-managed or manager-managed. This provides flexibility in how management is structured and how company decisions are made. It’s also good for passive investors or owners who aren’t involved in day-to-day operations.
  
  
• LLP: Partners typically manage an LLP themselves. All partners usually have equal decision-making authority on, for example, profit sharing or the company’s operating structure, unless otherwise stated in the partnership agreement.

Availability and Restrictions

• LLC: Available to almost any type of business across all 50 states, LLCs are versatile and can be used by individuals, startups, and growing companies. However, some states prohibit certain professions from forming a limited liability company vs. LLP.
  
  
• LLP: In many states (including California), LLPs are restricted to certain licensed professions such as law, accounting, medicine, or architecture. Businesses that do not fall under licensed professional categories may not meet LLP filing requirements, depending on state regulations. Additionally, not all states recognize an LLP formed in another state.