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Partnership vs. Limited Liability Partnership: Know the Difference

Shumaila Saeed
By Shumaila Saeed || Published on January 20, 2024
Partnership is a business with individuals managing based on a Partnership Agreement. LLP combines partnership flexibility with limited liability for partners.
Partnership vs. Limited Liability Partnership

Key Differences

In a traditional partnership, partners share equal responsibility and liability for business debts and actions. An LLP, however, provides individual partners protection from joint liability, safeguarding personal assets against the partnership's debts or negligence.
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Jan 20, 2024
Partnerships are governed by partnership agreements and require fewer formalities in their structure. LLPs require registration with relevant state authorities and must adhere to more formal compliance requirements.
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Partners in a traditional partnership face personal taxation on their share of the profits. LLPs also allow profits to pass through to partners for individual taxation, but they offer better protection against personal liability.
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In partnerships, management and decision-making are typically shared among all partners. In an LLP, while the structure can be similar, the degree of liability each partner bears may not affect their level of control or decision-making power.
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Shumaila Saeed
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A traditional partnership is often preferred for small businesses with minimal risk. LLPs are more suited for professional groups like lawyers or accountants who require protection against partners’ individual actions.
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Comparison Chart

Liability

Unlimited, joint and several
Limited, not responsible for other partners' negligence
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Legal Formalities

Fewer, simpler structure
More, requires registration and compliance
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Taxation

Pass-through to individual partners
Pass-through, but with limited liability
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Management

Equal among partners
Can vary, independent of liability
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Suitability

Small businesses, lower risk ventures
Professional services, higher risk ventures
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Partnership and Limited Liability Partnership Definitions

Partnership

A partnership is often based on a formal agreement between parties.
Their partnership agreement outlined the roles and contributions of each partner.
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Limited Liability Partnership

LLPs are preferred in professions where individual partner protection is essential.
Their law firm was structured as an LLP to safeguard individual attorneys.
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Partnership

Partnerships have a straightforward and flexible management structure.
The flexibility of their partnership allowed for easy adaptation to market changes.
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Limited Liability Partnership

It combines the flexibility of a partnership with the protection of a corporation.
The LLP structure allowed them to manage the business flexibly while limiting personal risk.
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Partnership

A partnership is a business operated by two or more individuals.
They started their catering business as a partnership.
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Limited Liability Partnership

Partners in an LLP are not personally liable for the misconduct of other partners.
In their LLP, one partner’s negligence did not affect the others financially.
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Partnership

It involves shared ownership, responsibilities, and profits.
In their partnership, both partners shared decision-making equally.
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Limited Liability Partnership

An LLP is a partnership where partners have limited liabilities.
They formed an LLP to protect their personal assets.
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Partnership

The state of being a partner.
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Jan 06, 2024

Limited Liability Partnership

An LLP requires formal registration and adherence to regulatory requirements.
Registering their business as an LLP involved several legal formalities.
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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.
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Jan 06, 2024

Partnership

The persons participating in such a business entity.
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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.
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Partnership

The state of being associated with a partner.
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Partnership

An association of two or more people to conduct a business
Forge a partnership
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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,
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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.
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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.
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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.
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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.
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Partnership

The members of a business venture created by contract
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Partnership

A contract between two or more persons who agree to pool talent and money and share profits or losses
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Partnership

In a partnership, each partner is liable for the business debts.
When the partnership faced financial issues, both partners were liable.
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Repeatedly Asked Queries

How is liability different in an LLP?

In an LLP, partners are not personally liable for the actions of other partners or the debts of the business.
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What is the main advantage of a partnership?

The main advantage is its simplicity and flexibility in management and operations.
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Jan 20, 2024

Are partnerships required to register legally?

Generally, partnerships do not require legal registration, but this can vary by jurisdiction.
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Is an LLP a separate legal entity?

Yes, an LLP is a distinct legal entity from its partners, capable of owning property and entering contracts in its own name.
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How are profits distributed in a partnership?

Profits in a partnership are typically distributed according to the partnership agreement.
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Is an LLP considered a separate legal entity?

Yes, an LLP is often a separate legal entity, distinct from its partners.
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Jan 20, 2024

Can LLP partners be corporations?

Yes, in many jurisdictions, corporations can be partners in an LLP.
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Can an LLP have more than two partners?

Yes, an LLP can have multiple partners, and there is no upper limit on the number of partners.
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Is there a requirement for a minimum capital investment in an LLP?

No, there is no minimum capital requirement for forming an LLP.
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Jan 20, 2024

Is it necessary to register a partnership or LLP with the government?

Depending on the jurisdiction, there may be registration and compliance requirements for partnerships and LLPs.
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Are partners in a partnership considered employees?

No, partners in a partnership are not employees; they are co-owners of the business.
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Can a partnership or LLP be converted into another business structure?

Yes, it is possible to convert a partnership or LLP into a different legal structure, but it involves legal formalities.
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Jan 20, 2024

Can an LLP be formed for any type of business?

LLPs are suitable for most types of businesses, except those explicitly excluded by law, such as banking and insurance.
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What happens if a partner or LLP member wants to leave the business?

The process for a partner or member leaving a partnership or LLP is typically outlined in the Partnership Agreement or LLP agreement.
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Can partnerships or LLPs raise capital through public offerings?

Partnerships cannot raise capital through public offerings, while LLPs may have more flexibility depending on local regulations.
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About Author
Shumaila Saeed
Written by
Shumaila Saeed
Shumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.

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