Difference Between LLC and LLP

The two most popular and flexible forms of business organisation are LLC and LLP. As these two combine the features of a general partnership and company, most of the people assume that they are one and the same thing. In LLP the internal governance structure is regulated by the partnership agreement, but in case of LLC, the same is regulated by the respective statute.

The management of LLP is performed by the partners themselves, whereas the LLC’s business affairs are looked after by the Board of Directors (BOD).

Further, the jurisdiction we are talking about has a great role to play in distinguishing the two entities because there are many countries where either of the two exists. So, here in this article, we are going to discuss the basic difference between LLC and LLP.

Content: LLC Vs LLP

1. Comparison Chart
2. Definition
3. Key Differences
4. Similarities
5. Conclusion

Comparison Chart

Basis for Comparison	LLC	LLP
Meaning	An LLC is a business vehicle that is closely held and combines the elements of company and partnership.	An LLP is a kind of partnership, wherein the liability of partners are limited to the capital contributed by them.
Owners	Members	Partners
Liability	the liability of the members is limited to the amount unpaid on the shares which the members hold.	Liability of the partners is limited to the proportion of their contribution.
Charter document	Memorandum and Articles of Association	Limited Liability Partnership Agreement
Minimum members	One or more	Two or more
Suffix	'LLC' is added at the end of the entity's name.	'LLP' is added at the end of the entity's name.
Books of accounts	Maintained on accrual basis	Can choose to maintain their accounts on cash or accrual basis.
Life	Usually have a limited life.	Perpetual succession.

Definition of LLC

Limited Liability Company or otherwise known as LLC, is a form of business organisation, that is privately held. It is a hybrid arrangement, in the sense that it integrates the features of a general partnership and a body corporate. It is the most common business structures in the United States, United Arab Emirates, Poland, Japan, Brazil and so on, which exist with different names in different countries.

The business vehicle is equipped with the characteristic of limited liability, which implies that the members of the LLC will not be personally liable for the acts or debts of the company. In this way, the personal property of the members cannot be used by the creditors to recover their dues.

Further, the flow-through taxation removes the cascading effect and the profits are taxed only once and that too in the hands of the members. The business profits or losses are declared by the owners through their individual tax returns.

To set up a limited liability company it requires a single member, and there is no ceiling on the maximum number of members. There are two types of LLC’s – single member LLC and multi-member LLC. Its life is limited, as when a member leaves the organisation, the business is wound up. The rest of the partners can then decide, whether they want to continue, with a new LLC or part ways. The owners of an LLC can decide mutually, the ratio for distribution of profit.

Definition of LLP

LLP stands for limited liability partnership, as its name signifies, it is a form of partnership, in which the liability of some or all the partners are limited. It can be found in countries like India, China, Canada, Japan, Kazakhstan, Singapore, United Kingdom, etc. These are often called with different names in different jurisdictions.

It is a business structure; that possess the merit of limited liability, i.e. the partners are not personally liable, for the debts of the firm plus they are not bound by the acts performed by other partners. Moreover, on the basis of their mutual agreement, the flexibility of establishing the business vehicle as a partnership, is also conferred to the partners.

To set up a limited liability partnership, two or more persons should join, to undertake a lawful business with an intent of making the profit, from that business and subscribe their names to the registration document and submit it to the relevant authority of the state.

LLP agreement is the fundamental document, which states the rights, obligations and duties of the partners inter se and also of the LLP.

Similarities

• Pass through taxation
• Formed to provide protection to personal assets of the owners.
• Limited liability
• Contractual Capacity
• Separate legal entity, distinct from its owners.
• Combines the elements of a traditional partnership and body corporate.

Conclusion

Since last decade, LLC’s and LLP’s are in vogue, as they provide a number of benefits to the members. Due to the flexibility in the structure and operation, these two business vehicles, are appropriate for small and medium companies. These are also famous among start-up founders, professionals and service providers, as the two forms of organisation perfectly suit their business requirements.