Difference Between an LLC and an LLP

Difference Between an LLC and an LLP

The business structure you choose when you start a new business should first and foremost meet your business needs. If you are starting the business with other people, you may be wondering about the differences between a limited liability company (LLC) and a limited liability partnership (LLP). While both incorporate certain aspects of a corporation and a partnership, there are some distinct differences:

Management Structures

LLCs have two common management structures: member-managed and manager-managed.

In a member-managed LLC, each member participates in the daily management of the company and is authorized to act as an agent of the company. Each member is able to sign contracts on behalf of the company and perform other managerial duties, which are typically outlined in the operating agreement.

In Florida, unless otherwise provided for in the articles of organization or operating agreement, all LLCs are presumed to be member-managed.

In a manager-managed LLC, members are passive investors rather than active managers. In this type of structure, management is delegated to a group of members or a third party manager. This type of management structure may also be preferable when there are a large number of members.

An LLP is managed as a general business partnership, with management duties divided equally among partners. A partnership agreement sets out how business decisions are made and the responsibilities of each partner to the partnership.

Liability Protection

An LLC’s limited liability protection extends to both managing and non-managing members. If there is a legal judgment against the business, the personal assets of LLC members cannot be attached by creditors. However, if an LLC member commits an illegal act, the LLC and its members may be held liable.

An LLP’s limited liability protection is narrower. Each partner is personally liable for any negligence he or she commits; the other partners are protected from another partner’s mistakes.

Taxation

Both LLCs and LLPs are “pass-through” entities, meaning that company profits and losses are reported on the personal income tax returns of the owners or partners, thereby avoiding the double taxation issues that burden C Corporations.

A member’s share of LLC profits is not considered earned income and is not subject to the self-employment tax unless he or she is a managing member. In that case, the managing member must pay the self-employment tax on their distributive share.

Business owners seeking to protect their business interests should seek a qualified, competent advisor for assistance. Contact one of the experienced Florida business attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com. We offer free consultations to business owners seeking to find the right attorney to meet their business’ legal needs.

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