LLC vs LLP: Key Differences Explained (2026 Complete Guide)

Choosing the right business structure can feel overwhelming — and the confusion between an LLC and an LLP is one of the most common sticking points for entrepreneurs and professionals alike. Both offer limited liability protection. Both avoid double taxation. Yet they serve entirely different types of businesses, and picking the wrong one can create real legal and operational problems.

If you’re weighing an LLC vs LLP, the short answer is this: most small business owners should default to an LLC, which you can form through services like ZenBusiness starting at $0 plus state fees. But if you’re a licensed professional forming a firm with partners — a law practice, accounting firm, or medical group — an LLP may be the structure your state actually requires.

This guide breaks down every meaningful difference between these two structures so you can make the right call in 2026.

What Is an LLC?

A Limited Liability Company (LLC) is the most popular business entity in the United States. As of 2026, more than 5 million new LLCs are formed annually according to data from the IRS and state filing agencies — and for good reason.

An LLC combines the liability protection of a corporation with the pass-through taxation of a partnership or sole proprietorship. Members (the LLC’s owners) aren’t personally responsible for business debts or lawsuits, and the business itself doesn’t pay federal income tax — profits and losses “pass through” to members who report them on their personal returns.

Key features of an LLC:

Flexible management: Can be member-managed (owners run the business) or manager-managed (a designated manager handles day-to-day operations)
No ownership restrictions: A single person, multiple people, other LLCs, corporations, or foreign nationals can all own an LLC
Available in all 50 states: Every state recognizes and allows LLCs
Minimal formality: No board of directors, no required annual meetings, far less paperwork than a corporation
Operating agreement: A private internal document that governs the LLC — not required in most states, but strongly recommended

For a deeper dive, see our complete beginner’s guide to what an LLC is.

What Is an LLP?

A Limited Liability Partnership (LLP) is a partnership structure where all partners receive limited liability protection — meaning each partner is generally shielded from the personal debts and negligence of other partners.

This sounds similar to an LLC, but the key distinction lies in who uses LLPs and why.

In most states, LLPs are exclusively available to licensed professionals — attorneys, accountants, architects, doctors, engineers, and similar regulated professions. The rationale is that professional licensing boards often prohibit professionals from hiding behind a corporate entity when it comes to their own malpractice. An LLP threads the needle: it protects Partner A from a lawsuit caused by Partner B’s negligence, while still holding each partner personally accountable for their own professional misconduct.

Key features of an LLP:

Professional use only (in most states): Many states restrict LLP formation to licensed professionals
Partner-level liability protection: Partners are shielded from each other’s malpractice, debts, and obligations
Pass-through taxation by default: Like an LLC, an LLP isn’t a separate taxable entity — income flows to partners
Partnership governance: Run under a partnership agreement rather than an operating agreement
More state variation: Rules, availability, and liability protections vary significantly by state

LLC vs LLP: The Key Differences Explained

Here’s where the LLC vs LLP differences explained in real terms matter most:

1. Who Can Form One

LLC: Anyone can form an LLC — a solo freelancer, a married couple starting a business, a tech startup with angel investors. There are no professional licensing requirements.

LLP: Most states restrict LLP formation to licensed professionals. In California, for example, only attorneys, accountants, and architects can form LLPs. In Texas, only licensed attorneys and accountants qualify. A few states — including Delaware and New York — allow general partnerships to convert to LLPs without the professional restriction, but this is the exception, not the rule.

Verdict: If you’re not a licensed professional, an LLP likely isn’t even an option in your state.

2. Liability Protection

LLC: Members enjoy “full” limited liability protection. If the LLC is sued or takes on debt, the members’ personal assets — their house, savings account, personal vehicles — are protected. The exception is personal guarantees, which some lenders require, and “piercing the corporate veil” situations where courts strip LLC protections for fraud, commingling assets, or failing to observe basic formalities.

LLP: Partners are shielded from each other’s debts and misconduct. But — and this is crucial — each partner remains personally liable for their own professional malpractice. If you’re a surgeon in an LLP and you injure a patient, the LLP won’t protect you from that lawsuit. Your partners are protected from your mistake, but you aren’t.

Verdict: For most purposes, LLCs offer broader, simpler liability protection.

3. Management Structure

LLC: Highly flexible. Members can run the LLC themselves (member-managed) or appoint a manager — who can be a non-owner — to handle operations (manager-managed). The operating agreement governs everything.

LLP: Partners manage the business collectively. Every general partner typically has equal say in day-to-day decisions, though a partnership agreement can customize this. There’s no equivalent to a “manager-managed” LLC structure.

Verdict: LLCs win on management flexibility, especially for businesses with investors who want passive ownership without management duties.

4. Tax Treatment

Both LLCs and LLPs are pass-through entities by default — the entity itself doesn’t pay federal income tax. Income, deductions, and losses flow to individual members or partners who report them on their personal tax returns (Schedule K-1 for partnerships, Schedule E for single-member LLCs).

The meaningful difference is in how each entity can elect to be taxed:

LLC tax options:

Single-member LLC: taxed as a sole proprietorship (disregarded entity) by default
Multi-member LLC: taxed as a partnership by default
LLC can elect S-Corp taxation to reduce self-employment taxes
LLC can elect C-Corp taxation (unusual, but available)

LLP tax options:

Taxed as a partnership by default
Can elect S-Corp status (subject to eligibility rules)

In practice, the S-Corp election is where the real tax savings often live. When LLC profits exceed roughly $50,000–$80,000 per year, electing S-Corp taxation can meaningfully reduce self-employment taxes — something our LLC vs S-Corp tax comparison covers in detail.

Verdict: Tax treatment is nearly identical, but LLCs have slightly more flexibility on entity classification.

5. State Availability and Recognition

LLC: Recognized in all 50 states and DC. If your LLC is formed in Wyoming but you do business in California, you’ll need to “foreign qualify” in California — but there’s no question the entity type is valid.

LLP: Not uniformly recognized. Some states don’t allow LLP formation at all, and states that do often have strict professional restrictions. Cross-state recognition of LLPs can be complicated, especially for professional firms operating in multiple jurisdictions.

Verdict: LLCs are far more portable and universally recognized.

6. Annual Fees and Compliance

LLC:

Annual reports required in most states (fees range from $0 in New Mexico to $800/year in California)
Operating agreement recommended
Registered agent required in every state

LLP:

Annual filings required (varies by state)
Partnership agreement recommended
Registered agent required in states that allow LLPs
Some states require LLPs to carry minimum professional liability insurance (malpractice insurance)

Verdict: Similar compliance burden, but LLPs may have additional insurance requirements.

Quick Comparison: LLC vs LLP at a Glance

Feature	LLC	LLP
Who can form	Anyone	Licensed professionals (most states)
Liability protection	Full (personal assets protected)	Partial (own malpractice not covered)
Management	Flexible (member or manager)	Partner-managed
Tax treatment	Pass-through (multiple elections available)	Pass-through
State availability	All 50 states	Limited; varies by state
Common users	Small businesses, startups, investors	Law firms, accounting firms, medical groups
Registered agent required	Yes	Yes

When to Choose an LLC

Choose an LLC if:

You’re a solo entrepreneur, freelancer, or small business owner
You’re starting a business with one or more partners who aren’t licensed professionals
You want maximum flexibility in management and ownership structure
You want to be able to bring in investors or sell equity in the future
You’re in a state where LLPs aren’t available or aren’t allowed for your profession

I’ve seen too many business owners default to partnerships simply because they’re forming a business with a partner — but “I have a business partner” and “I should form a partnership” are two completely different things. In most cases, a multi-member LLC gives you everything a partnership does plus stronger liability protection and more flexibility.

Services like ZenBusiness can form your LLC starting at $0 plus state fees, and LegalZoom offers similar formation packages with registered agent service included for the first year. For most entrepreneurs reading this, the LLC formation path is well-trodden and straightforward.

When to Choose an LLP

Choose an LLP if:

You’re a licensed attorney, accountant, architect, or similar professional
Your state requires your profession to operate under a specific entity type
You’re forming a partnership with other licensed professionals who all want equal management rights
Your professional licensing board has restrictions on corporate ownership structures
You’re converting an existing general partnership for liability protection purposes

The most common scenario where an LLP makes more sense than an LLC: law firms and accounting practices. State bar associations and CPA licensing boards in many states restrict these professions from hiding behind an LLC’s full liability shield — they require that professionals remain personally liable for their own malpractice. An LLP satisfies that requirement while still protecting each partner from the others’ negligence.

According to the American Bar Association’s 2025 state-by-state entity guide, more than 35 states specifically authorize law firms to operate as LLPs, with many explicitly prohibiting law firm LLCs (though this is evolving). If you’re an attorney, check your state bar’s rules before choosing any entity type.

LLC vs LLP: Tax Planning Considerations for 2026

Both entity types are pass-through by default, but the real tax story happens at the member/partner level.

Self-employment taxes: In both LLCs and LLPs, active partners/members pay self-employment tax (15.3% up to the Social Security wage base) on their share of business income. This is often the biggest tax burden for profitable small businesses.

S-Corp election: Both LLCs and LLPs can elect S-Corp status with the IRS (Form 2553), allowing owner-employees to split income between a “reasonable salary” (subject to payroll taxes) and distributions (not subject to self-employment tax). For businesses generating $80,000+ in annual profit, this election can save $5,000–$15,000 per year in self-employment taxes.

State-level considerations: Some states impose entity-level taxes on LLCs (California’s $800 minimum franchise tax, New York’s LLC filing fee) that may not apply to LLPs. This can occasionally tip the calculation toward an LLP in certain jurisdictions — but it’s rarely the deciding factor.

IRS Notice 2025-3: The IRS issued updated guidance on partnership audit procedures in early 2025 that affects both LLPs and multi-member LLCs taxed as partnerships. Both entity types should review their partnership agreements or operating agreements to address audit representative designations.

Consult a CPA before making entity-level tax elections — the right choice depends heavily on your income level, number of members, and state of formation.

How to Form an LLC in 2026

Forming an LLC is straightforward in all 50 states:

Choose a state — most businesses form in their home state; see our guide to the best states to form an LLC if you’re considering alternatives like Delaware or Wyoming
Choose a name — must include “LLC” or “Limited Liability Company” and must be unique in your state
File Articles of Organization — the state formation document (fees range from $50 to $500)
Appoint a registered agent — a person or service with a physical address in your state to receive legal documents
Draft an operating agreement — governs ownership, profit distribution, and management
Get an EIN — free from the IRS, needed for taxes and banking
Open a business bank account — critical for maintaining liability protection

You can do this yourself, but many entrepreneurs use formation services to handle the paperwork and ensure compliance. ZenBusiness is our top recommendation for most founders — their Starter plan is $0 plus state fees and includes registered agent service for the first year. LegalZoom is a solid alternative with stronger brand recognition if attorney access matters to you.

See our comparison of the best LLC formation services for the full breakdown.

How to Form an LLP in 2026

LLP formation varies significantly by state, but the general process is:

Verify eligibility — confirm your profession qualifies for LLP formation in your state
Choose a name — must include “LLP” or “Limited Liability Partnership”
File a Registration of Limited Liability Partnership — the equivalent of Articles of Organization
Appoint a registered agent
Draft a partnership agreement — governs partner rights, profit sharing, decision-making
Obtain required insurance — some states mandate malpractice/professional liability coverage for LLPs
Register in other states if needed — foreign registration requirements apply to LLPs operating across state lines

Because LLPs are typically used by licensed professionals operating in regulated industries, formation often involves coordination with licensing boards, professional associations, and sometimes state regulatory agencies. An attorney who specializes in professional corporations or entity formation is often worth the cost here.

Common Misconceptions About LLPs

Misconception 1: “An LLP protects me from my own malpractice.” No. An LLP protects each partner from the other partners’ misconduct and debts. Your own professional negligence remains your personal liability.

Misconception 2: “Any business with partners should use an LLP.” False. Having multiple business partners doesn’t mean you should use a partnership entity. A multi-member LLC gives partners all the benefits of partnership taxation plus stronger liability protection and greater structural flexibility.

Misconception 3: “LLPs and LLCs are basically the same thing.” While both offer pass-through taxation and limited liability, the liability scope, availability, management structure, and typical use cases are meaningfully different.

Misconception 4: “I can convert my LLP to an LLC anytime.” It depends on your state and profession. Professional licensing restrictions may prevent conversion — and in some states, there’s no established conversion mechanism at all.

LLC vs LLP: State-by-State Snapshot

A few notable examples of how states handle LLPs in 2026:

California: LLPs available only to attorneys, accountants, and architects. No general business LLPs allowed.
Texas: LLPs available to attorneys and accountants. Law firms and CPA firms commonly use this structure.
New York: LLPs available more broadly, including general business partnerships, making it one of the more permissive states.
Delaware: Allows general LLPs with no professional restriction — the same state that pioneered flexible LLC laws has also kept LLP formation open to any partnership.
Florida: Restricts LLPs to professional service firms.
Wyoming: Strong LLC protections make LLPs relatively uncommon; most professionals opt for professional LLCs (PLLCs) instead.

If you’re a licensed professional, your state’s professional licensing board is the authoritative source on what entity type you’re permitted or required to use.

Frequently Asked Questions

What is the main difference between an LLC and an LLP? The main difference is who can form them and the scope of liability protection. LLCs are available to anyone and provide full personal liability protection. LLPs are typically restricted to licensed professionals, and they protect partners from each other’s malpractice — but not from their own professional negligence.

Can a non-professional form an LLP? In most states, no. LLPs are generally restricted to licensed professionals such as attorneys, accountants, architects, doctors, and similar regulated professions. States like Delaware and New York are exceptions where general business LLPs are permitted.

Is an LLC or LLP better for taxes? Both are pass-through entities with similar federal tax treatment. LLCs have a slight edge in flexibility — they can elect to be taxed as a sole proprietorship, partnership, S-Corp, or C-Corp. LLPs are generally limited to partnership or S-Corp taxation.

Can an LLP elect S-Corp status? Yes, an LLP can file IRS Form 2553 to elect S-Corp taxation, subject to eligibility requirements (no more than 100 partners, all U.S. residents, only one class of partnership interest). This can reduce self-employment taxes for profitable partnerships.

Do attorneys have to form an LLP instead of an LLC? It depends on the state. Some state bar associations prohibit law firm LLCs and require LLPs or professional corporations (PCs). Others allow professional LLCs (PLLCs). Attorneys must check their state bar’s rules before choosing any entity type.

How much does it cost to form an LLC vs an LLP? LLC formation fees range from $0 (state fee only, using a service like ZenBusiness) to several hundred dollars depending on your state’s filing fee. LLP formation fees are similar but may include additional costs for professional liability insurance requirements. Both require annual filing fees in most states.

Can I convert my LLC to an LLP? Conversion mechanisms vary by state, and professional licensing restrictions may prevent it. If you’re a licensed professional who initially formed an LLC and now wants an LLP, consult an attorney in your state before attempting any conversion.

What happens if my LLP operates in a state that doesn’t recognize LLPs? You may need to register as a foreign LLP in that state (if it allows foreign LLP registration), or you may be unable to legally operate as an LLP there at all. Cross-state professional firms using LLPs should conduct a state-by-state analysis before expanding operations.

The Bottom Line

For most entrepreneurs, the LLC vs LLP differences explained here point clearly in one direction: form an LLC. It’s available everywhere, offers strong liability protection for all members, and works equally well for solo operators, family businesses, and multi-partner ventures.

The LLP has a specific, valuable role — but that role is narrow. If you’re a licensed professional in a state where your profession is permitted to use an LLP, and you’re forming a multi-partner practice where protecting partners from each other’s malpractice is a priority, the LLP can be the right call. But even then, a professional LLC (PLLC) is worth comparing first.

If you’ve decided an LLC is the right structure, ZenBusiness offers the best combination of price, ease, and included features for most new business owners in 2026. LegalZoom is the other major option if you want more attorney access or brand familiarity. Both can have your LLC filed in 1–5 business days.

See our full best LLC formation services comparison to choose the right service for your situation.

The author name used in this article may be a pen name or pseudonym and is used for illustrative and editorial purposes only. This article is for informational purposes only and does not constitute investment, tax, or legal advice. Consult qualified professionals before making financial decisions.