LLP and Partnership Difference: Everything You Need to Know

The LLP and partnership difference can be explained this way: an LLP is a business structure that combines the features of a corporation and partnership.3 min read

The LLP and partnership difference can be explained this way: an LLP is a business structure that combines the features of a corporation and partnership. A partnership is an arrangement to operate a business and share the profits and losses mutually among two or more people.

About Limited Liability Partnerships and Partnerships

LLPs are governed by the Limited Liability Partnership Act of 2008. The charter document for an LLP is an LLP Agreement for Partnerships, which is also called a Partnership Deed.

Registration

An LLP must register with the appropriate state or country. Registration of a partnership is optional. Both can usually be completed online at the applicable website for the state or country where the company is being formed.

Owner's Liability

For an LLP, the owner's liability is limited to the capital contribution with the exception of fraud. Owner liability for a partnership is unlimited.

Legal Status

A limited liability partnership maintains a separate legal status. A partnership is collectively known as a firm, which means no separate legal entity exists. Because of its legal status, an LLP can sue and be sued in its name. A partnership cannot enter into a contract in its name.

Company Name

A limited liability partnership must contain the suffix "LLP" in its name. Partnerships can choose any name with no restrictions.

Partner Number

There is no limit to the number of partners in an LLP. Partnerships may vary with a maximum of 20 or 100.

Property Holdings

LLPs are allowed to hold property under the company name while this is not allowed for partnerships.

Partnership Relationship

With an LLP, the partners are considered as agents for the LLP only. A partnership is different in that the partners are agents of the firm and other partners.

Perpetual Succession

LLPs allow perpetual succession. Partnerships do not.

Audits

Audits are required for a limited liability company if the turnover and capital contribution overreaches a certain amount. Partnerships do not require an audit.

Transfers and Conversions

After obtaining consent from all the partners in an LLP, shares may be transferred easily but the transfer does not entitle the transferee to automatically become a partner. An LLP cannot convert to a partnership, but it can convert to either a limited company or a private limited company.

Business Structure

The day-to-day management of a limited liability partnership is a team effort with all partners of the company allowed to make decisions affecting management decisions. In contrast, in a limited partnership, the general partner is responsible for managing the daily activities of the company. The limited partner in a limited partnership does not participate in any of the business' managerial decisions. A limited partnership partner is more in line with that of a silent partner who has invested in the company.

Business Types

Limited liability partnerships can be formed, but in some states, it is only allowed for the use of certain professions such as architects, lawyers, and accountants. It is required that each partner of an LLP has the applicable state-issued occupational license. The requirement prevents an LLP from hiring professional business persons who are not licensed. There are no requirements regarding partners in a partnership to be licensed.

Advantages of Limited Liability Partnerships

An important advantage of an LLP is that one partner cannot be held liable due to the other partner's failure or misconduct. The protection shields one partner from the wrong decision-making or bad business choices of the other.

Rules vary from country to country with many requiring an LLP to have a minimum of one partner given unlimited liability like it's done in a general partnership. Even if there are changes among the partners, the company can still continue to do business.