The difference between an LLP and a partnership comes down to who pays when something goes wrong. A general partnership forms automatically the moment two people start running a business together for profit, and every partner is personally liable for every debt and every mistake the business makes. A limited liability partnership is a general partnership that has filed paperwork with the state to add a liability shield, so one partner’s malpractice or bad contract doesn’t put the others’ houses and savings at risk. Everything else that separates the two structures (formation steps, eligibility rules, insurance requirements, even some tax treatment) flows from that single change.
The Liability Line Between the Two
Under the Revised Uniform Partnership Act (RUPA), which most states have adopted in some form, every partner in a general partnership is jointly and severally liable for every obligation the business incurs. A creditor who wins a judgment against the firm can collect the full amount from any one partner’s personal bank account, home equity, or other assets. It doesn’t matter whether that partner had anything to do with the deal that created the debt. Two consultants split revenue, one signs a disastrous contract, and both are personally exposed.
An LLP rewrites that rule. Every state that authorizes LLPs agrees on at least this much: a partner is not personally liable for harm caused by another partner’s negligence or misconduct. You still answer for your own professional errors and for the acts of anyone you directly supervise, but a colleague’s malpractice claim doesn’t follow you home.
Partial Shield vs. Full Shield States
States diverge on how far the shield reaches when the obligation is an ordinary business debt rather than a tort. “Partial shield” statutes protect partners from each other’s wrongful acts but leave them personally liable for things like office leases, bank loans, and vendor invoices. “Full shield” statutes extend protection to all partnership obligations regardless of source, so a partner’s exposure for firm debts is generally limited to the capital they’ve put into the business.
The trend has moved toward full-shield protection, and later-adopting states have almost uniformly chosen the broader version. But assuming you have full-shield coverage without reading your state’s statute is a mistake you don’t want to discover during litigation. Check first.
How Each One Is Formed
A general partnership is the easiest business entity to create because you don’t have to create it on purpose at all. Two people working together for profit have formed a GP under the law whether they realize it or not. No filing, no registration, no written agreement is required. A handshake deal between freelancers who split revenue is a general partnership with full joint-and-several liability attached.
An LLP requires a formal filing. Under RUPA, a partnership becomes an LLP by submitting a Statement of Qualification to the Secretary of State or equivalent office. That statement includes the partnership’s name, principal office address, a designated agent for service of process, and a declaration electing LLP status. Filing fees vary by state but commonly fall in the $100 to $500 range for the initial registration.
The filing is not a one-time act. LLPs must submit annual reports to keep their status in good standing. If an LLP fails to file or pay the associated fee, the Secretary of State can revoke LLP status after at least 60 days’ written notice. Revocation doesn’t dissolve the partnership itself, but it strips away the liability shield, effectively dropping the business back to general partnership status. Most states allow reinstatement within a set window if the delinquent filings are cured, though any obligations incurred during the gap may not be covered.
An LLP must also carry a designator in its official name, such as “LLP,” “L.L.P.,” or “Registered Limited Liability Partnership.” The designator serves as public notice that the entity has limited liability protection.
Written Partnership Agreements
Most states don’t require either structure to have a written partnership agreement. Operating without one is still a bad idea. The agreement defines each partner’s capital contribution, profit share, voting rights, authority, and exit terms. Without it, the default rules under RUPA apply, and those defaults rarely match what the partners actually intended.
Who Can Actually Form an LLP
Anyone can form a general partnership for any lawful business. There are no professional licensing requirements, no industry restrictions, no minimum capital. A food truck, a landscaping crew, or a two-person e-commerce shop can operate as a GP without clearing any gate.
LLPs face a narrower path in many states. A significant number of jurisdictions limit the LLP structure to licensed professionals such as lawyers, accountants, architects, engineers, and physicians. The reasoning is that these professions already carry individual licensing obligations and malpractice standards, so allowing them to limit vicarious liability for a colleague’s errors fits within that regulatory framework. A general retail business trying to file as an LLP in one of these states would have its application rejected. Other states impose no such restriction. Check your state’s business code before you file.
Insurance and Financial Security Requirements
Some states condition LLP status on carrying professional liability insurance or setting aside a financial security fund. The specifics vary. California requires LLPs formed by lawyers or accountants to carry malpractice insurance or provide equivalent financial security as a condition of maintaining registration. Texas requires LLPs to carry at least $100,000 in coverage or set aside that amount to satisfy potential judgments. If your state has such a requirement and your coverage lapses, the shield itself may be at risk.
What’s the Same in Both Structures
On day-to-day governance, GPs and LLPs run the same way by default. Unless the partnership agreement says otherwise, every partner has an equal vote in management decisions regardless of capital contribution. Any partner can bind the entire firm to a contract made in the ordinary course of business. This holds whether the partnership has two partners or two hundred. Large professional firms operating as LLPs almost always override these defaults with managing partners, executive committees, and practice-group leaders, but those arrangements have to live in the written agreement.
Fiduciary duties are identical in both structures. Every partner owes the partnership and the other partners a duty of loyalty and a duty of care. Loyalty means no competing with the firm, no self-dealing, no siphoning of partnership opportunities. The duty of care is a floor: you’re liable for grossly negligent or reckless conduct, intentional wrongdoing, and knowing violations of law. These duties can be shaped by the partnership agreement within limits set by state law, but they can’t be eliminated.
Federal tax treatment is also the same. The IRS treats both GPs and LLPs as pass-through entities. The partnership itself pays no federal income tax; it files Form 1065 as an information return, and each partner receives a Schedule K-1 reporting their share of income, losses, deductions, and credits to carry onto their personal return. The Form 1065 deadline is the 15th day of the third month after the partnership’s tax year ends, which is March 15 for calendar-year partnerships.1Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income
Where Taxes Diverge in Practice
Self-employment tax is the one tax area where the structures can produce different results. General partners in a GP clearly owe self-employment tax on their distributive share of partnership income. For LLP partners, the answer is unsettled. Federal law excludes a “limited partner’s” distributive share from self-employment tax (other than guaranteed payments for services), but the statute was written before LLPs existed and doesn’t define who qualifies as a “limited partner” for this purpose.2Office of the Law Revision Counsel. 26 USC 1402 – Definitions
The IRS and the Tax Court have generally applied a “functional analysis” test, holding that LLP partners who actively manage the business and provide services are not “limited partners” for self-employment tax purposes and therefore owe the tax. In January 2026, the Fifth Circuit rejected that approach in a case involving a limited partnership, ruling that state-law classification is enough to qualify for the exclusion regardless of management activity. The court explicitly left open whether its reasoning extends to LLP partners, and the decision applies only within Texas, Louisiana, and Mississippi. Outside that circuit, LLP partners who provide services to the firm should expect to pay self-employment tax on their distributive share until more courts weigh in.
Converting a GP Into an LLP
A general partnership that wants the liability shield doesn’t need to dissolve and start over. The conversion is handled by filing a Statement of Qualification with the state, the same way a new LLP would. The procedural hurdle is internal: under RUPA, the vote required to approve LLP status is the same vote required to amend the partnership agreement. If the agreement is silent, most states default to a majority vote, though some agreements require unanimity for structural changes.
After filing, the partners should update the written agreement to reflect the new structure, notify banks and vendors of the name change (the “LLP” designator now has to appear), and confirm that any insurance requirements tied to LLP status are satisfied. The conversion takes effect on the filing date or a deferred date specified in the Statement, so there’s no gap in protection if the paperwork is done right.
Don’t Confuse an LLP With a Limited Partnership
A limited partnership (LP) is a different animal from an LLP, even though the names sit next to each other. An LP has two classes of partners: general partners who manage the business and carry unlimited personal liability, and limited partners who contribute capital, stay out of management, and are only on the hook up to their investment. An LLP has one class of partner. Every partner can participate in management, and every partner gets the liability shield. LPs fit passive investment arrangements. LLPs fit professional firms where everyone is doing the work.