LLCs and LLPs

What is a limited liability corporation? Limited liability partnership? What are the differences? What are the advantages and disadvantages of each?

LLCs are business structures that insulate owners from personal liability for debts, obligations and other liabilities of the business. LLCs also have pass through taxation, meaning that the business is only taxed once and the members and the business are not both taxed.

LLPs are business structures that insulate owners from the liabilities resulting from other owner's wrongful acts, omissions or negligence. Sometimes, depending on the state, LLPs afford further protections to the owners such as those of an LLC. LLPs also have pass through taxation.

The major difference in most states is that an LLP does not prevent owners of the business from being personally liable for the debts, obligations or liabilities of the business (unless those debts, liabilities or obligation was caused by the acts of another owner). However, an LLC provides protection to the owners from being personally liable for any debts, liabilities or obligations. Another difference is that an LLC is formed by filing articles of organization with the Secretary of State of most states while an LLP is formed by filing a Certificate of Limited Liability Partnership with the Secretary of State.

Advantages of both include the fact that they have pass through taxation, meaning that members of the LLP or LLC are not taxed twice as a business and as individuals. Another advantage of the LLC includes personal liability protection. This along with the pass through taxation, make this a great option for group practices, especially in law and medicine, because it insulates the members' from personal liability in case something occurs which may cause the business to have to pay out a lot of money.
A disadvantage of an LLP is that in most states they do not provide personal liability protection. A disadvantage of an LLC includes the fact that most states have different rules for LLCs so uniformity is lost.