LLP Vs. LLC: Choosing A Limited-Liability Entity (2026)

What an LLC Is

A limited liability company (LLC) is a business entity that exists separately from its owners. One of the key benefits of an LLC is limited liability. The company’s owners, called LLC members, are usually not personally liable for its liabilities and debts.

What an LLP Is

An LLP is also a business entity that exists separately from its owners, called partners. It limits their liability for company debts and liabilities.

Liability Protection Compared

The liability protection of an LLP differs in one important respect from that of an LLC. In an LLC, liability protection exists as long as the LLC members observe corporate formalities, thereby preventing a court from piercing the corporate veil.

When the corporate veil remains intact, the LLC members’ personal assets are not at risk for company liabilities.

The liability protection of an LLP is similar, with one important exception. While LLP partners are not personally liable for partnership debts and liabilities, they are personally liable for professional negligence they participated in.

Thus, if the LLP is sued for breaking an office lease, the partners’ personal assets are protected.

However, if the LLP is sued for partner A’s alleged malpractice, the LLP’s assets and partner A’s personal assets are exposed. The personal assets of partners B and C are protected as long as they did not know about, supervise or participate in the negligent act.

Taxation Differences

LLPs are subject to pass-through taxation. LLC taxes can be either pass-through or corporate.

Corporate taxation treats the LLC as a taxable entity. It files a tax return and pays taxes on its net revenue. LLC members must also pay income tax on any salary or owner draws paid to them. This is called double taxation.

Pass-through taxation means the entity does not pay income taxes. Instead, the owners pay income taxes on their share of the entity’s net revenue on their personal tax returns. This avoids double taxation.

Management and Formation Differences

LLCs can be managed by their members or a manager who need not be a member. LLPs are managed by their partners. Both entity types must be registered with the state by filing formation paperwork and paying a fee.

Which Structure to Choose

In many states, there is no choice between an LLP and an LLC. Licensed professionals in these states cannot form a standard LLC. Instead, they must choose an LLP, professional LLC (PLLC), professional corporation (PC) or another structure that leaves them exposed to malpractice claims.

Thus, in California, accountants cannot form LLCs. Instead, they must practice as a general or limited liability partnership.

At the same time, many states limit LLPs to licensed professionals. Thus, non-professionals cannot form an LLP. For example, New York only allows certain professions to form LLPs.

Review your state’s laws to determine any restrictions on structure types for your company.