Partnership vs. Limited Liability Partnership — What's the Difference?
By Tayyaba Rehman — Published on December 7, 2023
A Partnership involves mutual responsibility of debts and obligations; a Limited Liability Partnership (LLP) offers individual protection against partnership debts and liabilities.
Difference Between Partnership and Limited Liability Partnership
Table of Contents
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Key Differences
The concept of Partnership and Limited Liability Partnership revolve around the collaboration between two or more individuals in business. A Partnership signifies a business structure where individuals come together to share profits, losses, responsibilities, and obligations. In such a structure, all partners are personally liable for the firm's debts and actions. Therefore, if the business incurs debts, each partner's personal assets can be used to settle them.
Limited Liability Partnership, on the other hand, is a modern twist on the traditional Partnership. In an LLP, while partners share profits and losses, they have limited personal liability for the business's debts and the actions of other partners. This means that, unlike a traditional Partnership, individual partners in an LLP are not held responsible for the actions or debts caused by other partners.
The formation of a Partnership generally requires fewer formalities and paperwork compared to a Limited Liability Partnership. While creating a Partnership, a written agreement is recommended but not always mandatory. However, forming an LLP requires adherence to state-specific registration processes, including the filing of official documents.
Another difference between Partnership and Limited Liability Partnership lies in management. In a Partnership, every partner can take part in the decision-making process and has a say in managing the business. In contrast, an LLP might have partners who are only investors and do not participate in daily operations or decisions.
Both Partnership and Limited Liability Partnership have their advantages and drawbacks. While a Partnership allows more flexibility in operations, an LLP provides individual partners protection against certain liabilities, making it a preferred choice for many professionals.
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Comparison Chart
Liability
Unlimited personal liability for business debts.
Limited liability for business debts and actions of other partners.
Formation
Fewer formalities, written agreement recommended.
Requires state-specific registration and documentation.
Management
All partners can manage and make decisions.
Can have partners who are only investors and don't manage.
Flexibility
More flexible in terms of operations and decisions.
Structured with specific roles and protections.
Purpose
Suitable for small businesses without significant liabilities.
Preferred by professionals and larger entities seeking liability protection.
Compare with Definitions
Partnership
A business arrangement where two or more individuals share ownership and operations.
Mark and Lisa started a café in a Partnership, sharing both profits and responsibilities.
Limited Liability Partnership
A partnership where individual partners have limited personal liability for business debts.
As architects, they chose a Limited Liability Partnership to protect themselves from project-related liabilities.
Partnership
A collaborative agreement where parties assume mutual responsibility for a venture.
Their Partnership in the software firm was built on trust and shared goals.
Limited Liability Partnership
A legally recognized entity requiring registration and documentation for formation.
Before establishing their consultancy, they completed the necessary steps for a Limited Liability Partnership.
Partnership
A mutual agreement in which parties contribute resources for shared benefit.
The Partnership between the two firms allowed them to pool resources and expand their market reach.
Limited Liability Partnership
A modern business structure combining features of both partnerships and corporations.
The law firm transitioned into a Limited Liability Partnership to offer its partners more protection.
Partnership
The state of being a partner.
Limited Liability Partnership
An arrangement where partners have protection against the actions or negligence of other partners.
Opting for a Limited Liability Partnership, the investors felt secure from any potential missteps by others.
Partnership
A business entity in which two or more co-owners contribute resources, share in profits and losses, and are individually liable for the entity's actions.
Limited Liability Partnership
A business model offering flexibility of a partnership with liability protection similar to corporations.
Many professionals are drawn to the Limited Liability Partnership due to its balanced structure.
Partnership
The persons participating in such a business entity.
Partnership
A relationship between individuals or groups that is characterized by mutual cooperation and responsibility, as for the achievement of a specified goal
Neighborhood groups formed a partnership to fight crime.
Partnership
The state of being associated with a partner.
Partnership
An association of two or more people to conduct a business
Forge a partnership
Partnership
(cricket) The period when two specific batsmen are batting, from the fall of one wicket until the fall of the next; the number of runs scored during this period,
Partnership
The state or condition of being a partner; as, to be in partnership with another; to have partnership in the fortunes of a family or a state.
Partnership
A division or sharing among partners; joint possession or interest.
Rome, that ne'er knew three lordly heads before,First fell by fatal partnership of power.
He does possession keep,And is too wise to hazard partnership.
Partnership
An alliance or association of persons for the prosecution of an undertaking or a business on joint account; a company; a firm; a house; as, to form a partnership.
Partnership
A contract between two or more competent persons for joining together their money, goods, labor, and skill, or any or all of them, under an understanding that there shall be a communion of profit between them, and for the purpose of carrying on a legal trade, business, or adventure.
Partnership
The members of a business venture created by contract
Partnership
A contract between two or more persons who agree to pool talent and money and share profits or losses
Partnership
An association of two or more persons who jointly run a business and share profits or losses.
The Partnership between the designers led to a successful fashion brand.
Partnership
A business entity without a distinct legal status, making partners personally liable.
Due to the risks involved, they reconsidered starting their venture as a Partnership.
Common Curiosities
How is profit shared in a Partnership?
In a Partnership, profits are typically shared based on the agreement between partners, which can be equal or according to capital contribution.
Which is easier to set up, a Partnership or a Limited Liability Partnership?
A Partnership is generally easier to set up as it requires fewer formalities compared to a Limited Liability Partnership.
Can a Limited Liability Partnership have passive investors?
Yes, a Limited Liability Partnership can have partners who invest but don't participate in management or operations.
Do all partners in a Partnership have equal say in decisions?
Unless otherwise specified in the agreement, partners in a Partnership typically have an equal say in decisions.
How does taxation work for a Limited Liability Partnership?
Typically, a Limited Liability Partnership is taxed as a pass-through entity, meaning profits and losses pass through to individual partners' tax returns.
Are Limited Liability Partnerships recognized worldwide?
While many countries recognize Limited Liability Partnerships, the specifics of the structure and regulations can vary.
Can a Partnership transition to a Limited Liability Partnership?
Yes, with the proper legal procedures and documentation, a Partnership can transition to a Limited Liability Partnership.
Is a written agreement mandatory for forming a Partnership?
While recommended, a written agreement is not always mandatory for a Partnership, but it's advisable to avoid disputes.
Can a Partnership have limited liability provisions?
No, in a traditional Partnership, partners have unlimited personal liability for business debts and actions.
What's the primary distinction between a Partnership and a Limited Liability Partnership?
A Partnership has unlimited liability for partners, while a Limited Liability Partnership offers limited personal liability.
Can anyone form a Limited Liability Partnership?
Yes, but forming a Limited Liability Partnership requires adherence to specific state regulations and documentation.
Does a Limited Liability Partnership protect against all types of liabilities?
A Limited Liability Partnership protects partners from liabilities arising from other partners' actions but not from their own actions or malpractice.
Who is responsible for a business's debts in a Limited Liability Partnership?
In a Limited Liability Partnership, the entity itself is responsible for its debts, and partners have limited personal liability.
How many partners are required to form a Partnership?
A minimum of two individuals is required to form a Partnership.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
