An LLC, or limited liability company, is a popular business structure that allows you to run your enterprise like a partnership, but with the limited liability benefits of a corporation. A Limited Partnership (LP) is similar to an LLC, in that it allows you to form a business entity with other people or companies that you work with. Unlike an LLC though, LPs typically require more strict formalities and processes for their formation and operation than do LLCs. In this post we’ll look at how these two business structures compare and contrast, so you can determine which one is right for your needs!

Definition

A limited liability company (LLC) is a hybrid of a corporation and a partnership. It’s similar to both, but not identical to either.

What is an LLC? A limited liability company (LLC) is similar to a corporation in that it separates your personal assets from the business’ assets when you go into business together. An LLC has its own tax status and classification, separate from its owners or managers, who are called members instead of shareholders as in a corporation. Members usually take part in management decisions too; otherwise they must hire someone else who can make those decisions for them if they want to continue running their business without becoming involved themselves every day.

Members may be individuals or other entities such as another company or nonprofit organization like yours if you’re going into business with other nonprofits or churches, something that’s common enough these days due to recent changes made by Congress regarding charitable contributions via tax deductions.

Liability

An LLC is a pass-through tax entity, meaning that profits and losses are passed through to the owners of the business, who then report them on their individual tax return.

A Limited Partnership (LP) is also a partnership but with some important differences in how it’s taxed. With an LP, there is no double taxation like with a C corporation or S corporation; instead, the income from an LP flows through to its partners and they report it on their personal returns. In other words: if you have an LLC and make $100 million in profit over 5 years ($20 million per year), each partner will have to pay taxes on that income at their own rate (including any state taxes).

However, unlike someone who owns stock in a company or limited liability partnership where they would be liable for any debts that were incurred by those businesses (which could include fines or judgments), only assets are held liable when someone becomes part owner of these types of entities, and only if those assets aren’t protected properly (for example: insurance policies).

Structure

There are two major distinctions between an LLC and a Limited Partnership. The first is the structure of each entity, and the second has to do with who is responsible for what.

The structure of an LLC is much more flexible than that of a Limited Partnership because it allows for multiple shareholders and managers, as well as transferable ownership interests. A Limited Partnership, on the other hand, can only have one general partner and one or more limited partners (and they must be different people). It also requires that all members agree before making any decisions regarding the business, this makes it difficult to make changes quickly or efficiently if you’re not in agreement with everyone else involved.

Because an LLC offers greater flexibility than a Limited Partnership does, there are some drawbacks: Your company may be taxed at higher rates than those associated with partnerships; your personal liability depends on how much money you put into your business; you’ll need to pay extra fees when starting up; and it could take longer to form because of additional paperwork requirements.

Taxes

Taxation is one of the most important differences between LLCs and LPs.

LLCs are pass-through entities, meaning that their income passes through to their owners’ personal returns. An LLC does not pay tax on its own; instead, profits from your practice are reported on your personal tax returns as a Schedule E. This means you don’t need to file Form 1065 or Form 1120S with the IRS when you file your business taxes each year, your state may require it though!

LP (limited partnership) is taxed as a partnership agreement in which the partners report their share of the income or loss at both federal and state levels on Schedule K-1s and other forms. Partnerships have two types: general partnerships and limited partnerships.

Set up costs

In addition to the annual report and filing fee, you’ll also have to pay for any legal services you need to get your limited partnership set up.

If you’re going with an LLC instead of a limited partnership, there’s no additional cost beyond what it takes to register the business and obtain a business license.

A lawyer will be required for either type of business entity, but if you choose an LLC rather than a limited partnership, all he or she will do is prepare some paperwork; whereas if you go with a LP he or she will also handle all the elements involved in setting up your company on behalf of their client (the general partner).

Summary

A limited liability company is a business entity that combines the protections of a corporation and the tax advantages of a partnership. It provides greater legal protection for its owners than an LLC or corporation, while also having less reporting requirements than either.

The limited partnership is a legal entity in which two or more people invest money to be used by others in any business venture or project. This entity offers investors greater protection than they would have if they were only investing as individuals, but it also comes with more restrictions on how ownership can be transferred and managed throughout time.

An LLC offers more protection but you’ll pay additional fees to maintain it.

An LLC offers more protection but you’ll pay additional fees to maintain it.

In the simplest terms, an LLC is a more flexible option. It can be taxed as a corporation or as a partnership and it comes with fewer restrictions than other business structures. However, setting up and maintaining an LLC can cost significantly more than other types of businesses because you must pay annual state filing fees in addition to federal taxes.

Conclusion

If you’re still not sure which structure is right for your business, consider an LLC. An LLC offers more protection than a limited partnership and has fewer filing requirements. It also offers the option to pay taxes as an S Corporation or C Corporation, both of which are more favorable than paying taxes as a sole proprietor or partnership. However, it does require annual maintenance fees and ongoing legal counsel if you want to avoid liability concerns in the future.