What is the Difference Between a Limited Partnership & a Limited Liability Partnership?

by Christopher Carter, Demand Media

A limited partnership is a type of partnership that consists of at least one general partner and at least one limited partner. A limited liability partnership does not have a general partner, since every partner in an LLP is given the ability to take part in the management of the company.


Limited partnerships were popular during the 1970s and 1980s. Today, many business owners form limited partnerships for films and other projects that will last for a short period of time. Limited liability partnerships are relatively new in comparison to limited partnerships. LLPs became popular in the 1990s, around the same time that limited liability companies became a popular formation choice among business owners.


In a limited partnership, the general partner is responsible for managing the company's day-to-day activities. The limited partner in a limited partnership does not participate in making managerial decisions for the business. In a limited partnership, the limited partner is more like a silent partner that has invested in the company. In a limited liability partnership, all partners of the company are allowed to make management decisions for the company. In addition, general partners of a limited partnership may be limited liability companies or corporations, whereas LLCs and corporations may not be partners in an LLP.


When operating a limited partnership, the general partner has unlimited liability for company losses and debts, while a limited partner has limited liability protection against company debts and losses. This means the general partner may lose his home and other personal assets because of losses and obligations that occur as a result of operating the business. Limited partners have personal asset protection against company obligations and debts. In an LLP, all partners have limited liability protection against company obligations and debts. In addition, partners in an LLP have limited liability protection against malpractice suits that stem from another partner's negligent acts.


A limited partnership can be formed by any business type, while LLPs can only be used by certain types of professions, such as accountants and architects. In fact, states such as California limit LLP formation to lawyers or accountants. Every partner of an LLP must have the appropriate state-issued occupational license, which is not a requirement in a limited partnership. This requirement prevents an LLP from adding talented partners with business expertise, simply because they are not licensed professionals.


In a limited partnership, the general partner must pay self-employment taxes on money received from the company, while limited partners are not required to pay self-employment taxes. This is in contrast to an LLP, where each partner must pay self-employment taxes on her share of the company's profits and losses. Furthermore, limited partners receive proceeds from the business after the general partners have received their share of company profits. This is in contrast to an LLP, where each partner receives profits and losses from the company according to her ownership interest in the company.

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