LP vs. LLC: Key Differences

An LLC offers all members limited liability protection. An LP has one general partner with unlimited liability and limited partners with limited liability.
LP advantages include limited liability for limited partners and attracting passive investors. LPs must have a general partner to manage the business. An LLC offers more flexibility in management and ownership structure than an LP.

When to Choose an LP over an LLC

Why would you choose an LP over an LLC? An LP might be better if: You want passive investors; You already have an LLC that will serve as the general partner; You are not concerned about the liability of the general partner.

For special purpose vehicles, LPs may not be recognized overseas. If you serve such countries, LLCs are better. The SPV can be a private equity or venture capital fund with rights. Access to the SPV is an investment strategy. LP investors get additional deal flow with potential outsize returns.
Investors looking to be passive can choose LPs. But an LLC can also do that by giving control to a manager.

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An LLC offers tax flexibility and operational efficiency. An LLP combines LLC advantages with a limited partnership. An LP has silent partners with one general partner in charge. Yes, an LLC can operate as a partner in a partnership, protecting partners from liability risks.

Why might an investor prefer to become a member of an LLC rather than a limited partner in a limited partnership? A limited partnership has general and limited partners with different liabilities. An LP must have at least one of each. A limited partner’s liability is limited to their capital investment.
Investors in an LLC or LP can dictate desired terms like voting rights. Delaware laws provide default governance if operating agreements are silent. Both LLCs and LPs enable pass-through taxation.

Key differences between LLCs and LPs include flexibility, personal liability, taxation, and popularity. LLCs accommodate more owners and management structures than LPs. LLC members have limited liability while general partners in LPs can be personally liable. Single-member LLCs are taxed differently than multi-member LLCs and LPs. LLCs are much more widely used than LPs.
Consider liability protection needs, ownership and management preferences, taxation, and compliance requirements when deciding between an LLC and LP. Consult an attorney to determine the best fit.