LLCs Compared to Limited Partnerships

LLCs Compared to Limited Partnerships

A limited partnership (LP) is an entity in which one or more partners control the business and are liable for the debts (the general partners); and one or more partners have an investment in the business, but no say in its management nor liability for the debts (the limited partners).

Advantages of an LLC

The advantages of a limited liability company over a limited partnership are as follows:

  • Liability protection. The general partners of a limited partnership face the same liability concerns as sole proprietors, the LLC offers more protection from liability because it does not need a general partner.
  • Tax advantages. An LLC has some tax advantages, such as allowing passive losses and increases in the tax basis, which give the members more tax deductions.

Disadvantages of an LLC

  • Profits of an LLC may be more likely to be subject to the Social Security and Medicare taxes than limited partnership interests.