When comparing an LLC vs. an LLP, the practical difference comes down to three things: who’s allowed to form one, how far the liability shield reaches between co-owners, and how much flexibility you have on taxes. A Limited Liability Company works for almost any business and lets you pick from several tax classifications. A Limited Liability Partnership is usually reserved for licensed professionals like lawyers, accountants, and architects, keeps each partner personally liable for the people they supervise, and almost always stays taxed as a partnership.
How the Liability Shield Compares
Both structures put your personal assets out of reach of ordinary business creditors. If the company can’t pay a vendor or loses a lawsuit, your house and savings generally stay protected. That alone puts both well ahead of a sole proprietorship or general partnership, where personal wealth is fully exposed.
The gap between the two shows up when a co-owner causes the problem. In an LLC, members are shielded from personal liability for another member’s negligence or malpractice. If your business partner mishandles a client engagement and gets sued, your personal assets stay off the table for that claim. You remain responsible for your own wrongdoing, but not theirs.
An LLP works similarly with one meaningful addition. You’re personally liable for your own malpractice and for the malpractice of anyone you directly supervise. A senior accountant who signs off on a junior associate’s flawed audit can face personal liability for that mistake. Other partners who had nothing to do with the engagement stay protected. The structure reflects how professional firms actually operate: supervising partners have a duty to catch errors before they reach clients.
Who Can Own Each One
LLCs are open to almost anyone. A single person can form one, or it can have dozens of members. Corporations, trusts, other LLCs, and foreign entities can all hold membership interests, with no cap on the number of owners.1Internal Revenue Service. Single Member Limited Liability Companies That flexibility fits everything from solo freelancers to layered real estate holding structures.
LLPs are more restrictive. In many states, only licensed professionals in the same field can form one together. A group of attorneys can, or a group of CPAs, but a lawyer and a software developer generally cannot. Some states open the LLP form to any type of business, but the professional-services limit is common enough that you need to check your state’s rules before assuming the option is available.2Internal Revenue Service. Instructions for Form 1065 (2025)
Management and Governance
LLC owners pick between two management models. In a member-managed LLC, all owners share day-to-day decisions. In a manager-managed LLC, owners appoint one or more managers to run operations, and those managers can be members or outside hires. That split lets passive investors own a stake without touching daily decisions.
An operating agreement spells out who decides what, how profits get split, what happens when someone wants to leave, and how disputes get handled. Not every state requires one, but skipping it means the state’s default rules govern your business, and those defaults rarely match what the owners actually intended.3U.S. Small Business Administration. Basic Information About Operating Agreements
LLPs are managed by their partners directly. Every partner usually has a voice in firm decisions. A partnership agreement covers the same ground an operating agreement does, and in professional firms where each partner brings clients and expertise, these documents tend to be detailed and heavily negotiated.
Tax Treatment
Pass-Through by Default
Both structures default to pass-through taxation. The business itself doesn’t pay federal income tax. Profits and losses flow to the owners’ personal returns, and each owner pays at their individual rate. That avoids the double taxation C-corporations face, where the company pays corporate tax and shareholders pay again on dividends.
Under default treatment, both LLC members and LLP partners owe self-employment tax on their share of ordinary business income. The combined rate is 15.3%, with Social Security at 12.4% up to the wage base ($184,500 in 2026) and Medicare at 2.9% with no cap. An additional 0.9% Medicare surtax applies above $200,000 for single filers or $250,000 for joint filers.4Internal Revenue Service. Self-Employment Tax and Partners
Where the LLC Has More Room
The LLC’s biggest tax advantage is its ability to choose how it’s classified. A single-member LLC defaults to sole proprietorship treatment, and a multi-member LLC defaults to partnership treatment. From there, an LLC can elect S-corporation status by filing Form 2553, or C-corporation status by filing Form 8832.5Internal Revenue Service. LLC Filing as a Corporation or Partnership
The S-corp election is popular with profitable LLCs for a specific reason. Under default pass-through treatment, the whole net income of the business is subject to self-employment tax. With an S-corp election, only the reasonable salary the owner pays themselves gets hit with employment taxes. Distributions above that salary are not, which can mean real savings once the business earns well above what a reasonable salary would be.6Internal Revenue Service. Instructions for Form 2553
LLPs rarely change their tax classification. The IRS technically allows any eligible entity to elect corporate treatment through Form 8832, but doing so would fundamentally change the nature of the arrangement and conflict with most state professional-practice regulations.7Internal Revenue Service. Form 8832 – Entity Classification Election In practice, LLPs stay taxed as partnerships.
The QBI Deduction and Its Catch for Professionals
Owners of both LLCs and LLPs can claim the Section 199A qualified business income deduction, worth up to 20% of qualified business income from a pass-through entity. Congress extended the deduction beyond its original 2025 expiration, so it remains available for 2026 and later tax years.8Office of the Law Revision Counsel. 26 U.S. Code 199A – Qualified Business Income
Here’s where many LLP owners lose ground. Certain “specified service trades or businesses” face limits on the deduction once the owner’s taxable income clears threshold amounts that adjust each year for inflation. The restricted fields include health, law, accounting, actuarial science, financial services, consulting, and performing arts. Since LLPs are overwhelmingly used by professionals in exactly those fields, many LLP partners lose part or all of the deduction at higher incomes. LLC owners in non-service industries face fewer limits.
Forming Each Entity
You form an LLC by filing Articles of Organization (also called a Certificate of Organization or Certificate of Formation in some states) with the Secretary of State. The filing typically requires the LLC’s name, its registered agent, and a principal business address. LLCs are recognized in all 50 states and the District of Columbia.
An LLP is created by filing a Statement of Qualification or a similar registration document. One distinction matters: the partnership itself usually already exists before the LLP filing. The statement converts an existing general partnership into an LLP by electing limited liability status. An LLC, by contrast, is a brand-new entity created by the filing itself.
All 50 states and D.C. allow LLPs, but the rules vary more than they do for LLCs. Some states restrict LLPs to specific professions. Others impose insurance or bonding requirements as a condition of maintaining LLP status. If your firm operates across state lines, confirm each state’s LLP rules separately. Formation fees for both structures typically range from $50 to $500 depending on the state, and most states also require annual or biennial reports with their own fees.
Keeping Your Liability Protection Intact
The shield either structure provides is not bulletproof. Courts can disregard the entity and hold owners personally liable when the business gets treated as a personal piggy bank rather than a separate organization. The common triggers include mixing personal and business funds, failing to keep basic financial records, underfunding the business so it can’t meet its obligations, and running personal expenses through business accounts.
Protecting the shield comes down to treating the entity as real: a separate bank account, documented major decisions, adequate funding, and a clear line between personal and business finances. That applies equally to LLCs and LLPs.
LLPs face one extra consideration. Several states require the partnership to carry professional liability insurance or set aside funds to cover potential malpractice judgments. Minimum coverage requirements vary, but amounts around $100,000 per partner are common in states that impose them. Letting the coverage lapse can jeopardize the partners’ limited liability status.
Which Structure Fits Your Business
The LLC is the more versatile of the two. If you’re starting a business that isn’t a licensed professional practice, the LLC is almost certainly the better fit. It accepts any type of owner, lets you separate ownership from management, and gives you the option to elect S-corp or C-corp taxation if the math eventually favors it. Most small businesses, startups, real estate ventures, and e-commerce operations use LLCs for these reasons.
The LLP exists for a narrower purpose: professional firms where each partner carries individual malpractice exposure and wants protection from the mistakes of colleagues. Law firms, accounting practices, architecture firms, and medical groups are the classic examples. The LLP’s liability structure is tailored to that reality, and the partnership governance model fits firms where every owner is an active, licensed practitioner.
If you’re a licensed professional choosing between the two, check your state’s rules first. Some states prohibit certain professionals from forming LLCs and require an LLP or professional corporation instead. Where both options are open, the LLC’s tax flexibility often tips the scale, unless the LLP’s partner-level liability structure better matches how your firm actually manages risk and supervision.