What are some of the advantages and disadvantages of an LLP compared to an LLC?
Advantages:
Costs less to set up. A partnership costs less to set up and run than an LLC. An LLC has initial formation fees, filing fees and annual state fees. However, these costs may be partially offset by lower insurance costs.
Allows owners to limit their liability when LLC is not an option. In many states, certain types of professions are not allowed to operate through LLCs. In these states, professionals have the option of operating through an LLP in order to protect their liability.
Disadvantages:
May not be available to non-professionals. In some states, only certain professionals, e.g. lawyers or accountants, are permitted to form LLPs.
More difficult to raise money. It's generally not possible for an LLP to raise money from outside investors. On the other hand, an LLC has many avenues to raise capital. It can admit new members by selling membership interests, and it can create new classes of membership interests with different voting or profit characteristics. Plus, investors can be assured that they are not personally liable for company debts.
More difficult to transfer ownership. The business of partnership cannot be sold whole. Instead, each of its assets, licenses and permits must be individually transferred. New bank accounts and tax identification numbers are also required. Ownership interests in an LLC may generally be sold to third parties without disturbing the continued operation of the business.
