Jan 24


What Is The Difference Between an LLP and an LLC?

By: The Lawyer in Blue Jeans Groups

An essential component of the American Dream that has flowed through this country since its founding are the principles and passions of entrepreneurship. In fact, according to the United States Small Business Administration, small businesses make up more than 99% of the employer firms in the United States, further emphasizing the importance of self-starters. With the economy beginning to improve and technologies like the internet and smart phones revolutionizing the traditional methods of doing business, now is a seemingly ideal time to turn that passion or skill you’ve been honing into a money making venture. However, the question remains: now that you’ve got your business idea in place, what steps need to be taken before you can start doing business?

Incorporate Your Business

One of the most important things a new California business owner can do is register their business as an LLC or LLP. These designations will allow your new venture access to a wide array of benefits including a Tax ID number, asset protection, deductible employee benefits, as well as lending real credibility to your organization as you begin to seek revenue. Though both the LLC and LLP designations extend many of the same protections to each business that elects them, you may not be sure which is right for you. Let’s examine what makes each organizational structure unique, and get a better idea of which will better suit your new venture.

What Is An LLC?

An LLC, or Limited Liability Company, is exactly what it sounds like: a organizational designation for businesses that provides its members liability protection from business debts and obligations. This means that all investors (members) of the LLC are only directly liable for the amount of their investment, protecting them from any additional financial obligations or ramifications pertaining to their work or the work of the company. An LLC can be established by one or more parties, and extends management rights to every participating member unless otherwise noted in the partnership agreement (which can be verbal or written). LLCs are a simple and streamlined way to form a business, and don’t require the traditional documenting efforts of a corporation including: holding annual meetings, taking meeting minutes, or composing and signing a written operating agreement. LLCs can be designated as a partnership or a sole proprietorship, and offer plenty of flexibility in the way they operate.

What Is An LLP?

While similar in nature to an LLC, an LLP has a more specific purpose in the State of California. A Limited Liability Partnership designation is extended only to businesses licensed to operate in the fields of law, architecture, or public accountancy. An LLP provides each partner the opportunity for a role in management of the partnership, and requires each partner to be responsible for the taxes associated with their share of the entity’s earnings. For this reason, an LLP does not pay an income tax as an organization, and instead pays an annual tax of $800. Like an LLC, an LLP offers a flexible structure of management to its partners, and operates by the terms of the binding partnership agreement, whether verbal or written.

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Though these brief overviews give you a better idea of the purpose and operation of LLCs and LLPs, the specifics as to how they may pertain to your business need to be examined and discussed with a qualified law professional. If you’re thinking of starting a business in California, let the experts at The Lawyer in Blue Jeans Group advise you on what’s best for your business going forward. Whether you form an LLC, LLP, or any other kind of business, we’ll help you take your first steps on the road to success. Contact The Lawyer in Blue Jeans Group or call us at, (619) 683-2545.