LLC vs. Partnership

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21 Aug, 2024

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Table Of Contents

Differences Between LLC and Partnership

One individual can form LLC by filing Articles of Organization while enjoying the status of separate legal entity and taxation benefits. In contrast, a Partnership can be formed between two or more individuals by agreeing on their rights and responsibilities. Still, they do not enjoy a separate legal entity status; however, they can pay taxes just like an individual.

You’ve decided to start with an organization. You’re sure that you want to create an LLC or partnership, but you're unsure what to go with. Before deciding to go with one, it’s prudent to look at different aspects like – own liability, cost of forming a partnership/LLC, ownership, taxation, management, etc.

Finding the right partner/s isn't easy. If you want to create a partnership, you need to find a partner or two. These partners should also have a similar vision or goal to partner with you. If you don’t know how to find a suitable partner (or don’t want to), forming an LLC would be the right option.
The procedure is almost similar if you talk about registering a partnership firm or an LLC. To form an LLC or partnership, you need to register with the state where the business operates. For forming an LLC, you need to file the "Articles of Organization" with the secretary of the state office. For forming a general partnership, two or more partners should agree to conduct business together and share the rights and profits as per the agreement.
If you decide to go with a partnership firm, you need to know that the partnership firm has several categories. You can create a general partnership (GP) firm where the owners have equal rights and personal liability for the business.
You can also create a limited partnership (LP) with two types of partners – limited and general partners. General partners have equal rights and personal liability, but limited partners don’t have any right to decision-making even though they invest money into the business.
There are also two kinds of partnerships other than LP and GP. One is called a limited liability partnership (LLP), where every partner will have limited personal liability. The other is a limited liability limited partnership (LLLP) where both limited and general partners involve themselves, and both of these partners have limited liability.
You will choose to have a general or limited partnership if you don’t want to involve the investors in decision-making. Forming an LLC will not allow you to skip the investors from the decision-making process.

One of the most important differences is the concept of a separate legal entity. The partners and the firm don’t have a separate legal entity in a partnership. If a partner of a partnership dies and withdraws, the partnership ends. But this is not the case for LLC. Since the LLC and the people involved in the LLC have a separate entity, LLC perpetuates until the date of termination.

Differences Between LLC and Partnership

LLC vs. Partnership Infographics

Let’s see the top differences between LLC vs. Partnership.

Key Differences

An LLC can be formed by an individual, while a partnership requires more than one person.
An LLC has a separate legal entity from its owners. A partnership firm doesn’t have any separate legal entity from its partners.
An LLC is formed by filing the "Articles of Organization" with the secretary of the state office. For a partnership firm, partners should agree on the terms of the partnership.
You will create an LLC if you don’t mind your investors getting involved in decision-making. You will go for a general or limited partnership if you don’t want your investors to be involved in the decision-making.

LLC vs Partnership Comparative Table

Basis of Comparison	LLC	Partnership
Formation by one individual	One individual can form LLC.	A single individual can't form a partnership.
Registration procedure	To form an LLC, you need to file the “Articles of Organization” with the secretary of a state office.	To form a partnership, the partners need to agree on their rights, profits, and share of liability.
Types	LLC has only one type.	Partnership firms can have four types – general partnership (GP) limited partnership (LP) limited liability partnership (LLP) limited liability limited partnership (LLLP).
Separate legal entity	LLC and the owners of LLC have a separate legal entity.	The partnership firm and the partners don’t have a separate legal entity.
Taxation	LLC pays taxes just like a partnership firm.	A partnership firm pays taxes just like an individual does.

Final Thoughts

The idea is to choose the one that suits your requirement and purpose. If you’re clear about your vision and what you want to accomplish, the rest will become easy. While deciding which one you should go for, LLC or partnership, this handy guide will help you learn the fundamentals.