If you’re thinking about starting a business, you might come across two common terms: LLP (Limited Liability Partnership) and LLC (Limited Liability Company). At first glance, they seem similar—they both offer limited liability protection. But the way they work behind the scenes is quite different.

Let’s break it down.

Structure:
An LLP is typically used by professionals like lawyers, doctors, and accountants who want to work together while protecting each other from personal liability. Each partner in an LLP manages the business directly and is responsible for their own actions, not the mistakes of other partners.

An LLC, on the other hand, is more flexible. It can have one owner (called a member) or many. LLCs are popular with startups and small businesses because they combine the liability protection of a corporation with the simplicity of a sole proprietorship or partnership.

Liability Protection:
Both structures protect your personal assets—like your house or car—if the business faces lawsuits or debts. But in an LLP, protection is limited to each partner’s actions. In an LLC, the whole company is shielded as a unit, regardless of who made the mistake.

Taxes:
LLPs and LLCs both avoid “double taxation” because profits pass through to owners’ personal tax returns. However, LLCs can choose how they want to be taxed (as a sole proprietorship, partnership, or corporation), offering more flexibility.

Who Can Form Them:
In many countries, LLPs are only available to licensed professionals, while LLCs are open to almost any type of business.

So, when choosing between an LLP and an LLC, think about your business type, number of owners, and how involved each person wants to be.

Looking ahead: As business laws evolve, knowing the right structure can save you money and headaches—so revisit your options as your business grows.