By Jeff W. Nunes, Esq. and Christen E. Gay, Associate What's the difference between an LLC and an LP?Limited Liability CompanyA Limited Liability Company (LLC) is a business entity that utilizes the best practices of corporations and partnerships while avoiding many of their organizational restrictions. For example, an LLC combines the limited liability feature of a corporation with the pass-through taxation of a partnership. Unlike corporations, however, LLCs do not need to hold director or shareholder meetings, or produce annual reports. An LLC also can distribute profits and losses in a manner disproportionate with member contributions. Additionally, unlike in a partnership, the owners of an LLC are not restricted to individuals, but instead can be any entity, including trusts, corporations, partnerships, and individuals. These attributes make LLCs particularly well suited for small businesses that wish to maintain a small number of active investors. Limited PartnershipA limited partnership (LP) bases liability on the amount of involvement in the partnership. An LP requires at least two members: one general partner and one limited partner. The general partner manages the business and is 100% liable for all the partnership debts, while the limited partner maintains a passive role, taking no part in the day-to-day operation of the business, and is only personally liable for their capital contributions. Consequently, LPs are better suited for businesses seeking investments while maintaining management control. Additionally, LPs provide multiple tax deductions for employees. For example, LPs can deduct health insurance and entertainment expenses, and the general partner can also deduct pension and 401(k) expenses. As a result of their different structures, both entities can provide several protections and advantages depending on your particular business needs. As a result of their different structures, both entities can provide several protections and advantages depending on your particular business needs.
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