Limited Liability Company (LLC) FAQ
What are the differences between a limited liability company and a partnership?
8. What are the differences between a limited liability company and a partnership?
The main difference between an LLC and a partnership is that LLC owners are not personally liable for the company's debts and liabilities. This means that creditors of the LLC usually cannot go after the owners' personal assets to pay off LLC debts. Partners, on the other hand, do not receive this limited liability protection unless they are designated "limited" partners in their partnership agreement.
Also, owners of limited liability companies must file formal articles of organization with their state's LLC filing office, pay a filing fee, and comply with certain other state filing requirements before they open for business. By contrast, people who form a partnership don't need to file any formal paperwork or pay any special fees.
LLCs and partnerships are almost identical when it comes to taxation, however. In both types of businesses, the owners report business income or losses on their personal tax returns; the business itself does not pay tax on this money. In fact, LLC and partnerships file the same informational tax return with the IRS (Form 1065) and distribute the same schedules to the business's owners (Schedule K-1, which lists each owner's share of income).
For more information on LLCs, see the Limited Liability Companies section of Nolo's website. To learn more about partnerships, see the Partnerships section. Finally, for guidance on deciding which ownership structure is most suitable for your business, read Nolo's article Choosing the Best Ownership Structure for Your Business.