Limited Partnership Vs. Limited Liability Partnership Taxability
In America there are many different ways that business entities are established. Taxes play a major role in determining how one is structured. In the case of limited partnerships and limited liability partnerships this is a major reason why they are selected.
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LP Features
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A limited partnership is when there is one general partner who will run the business. Along with, one or more limited partners that are investors in the business with no say over the day to day operations.
LP Taxes
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In a limited partnership the profits are taxed according to the partnership agreement or based on the amount invested in the business from each partner.
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LP Considerations
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There are restrictions as to how losses can be deducted under a limited partnership. If a partner is involved in other partnerships or businesses, then they can only deduct passive losses (losses that the investor was not directly involved with). This means that these losses can only be carried forward to balance out future income.
LLP Features
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A limited liability partnership is when there are at least two or more limited partners that protects the liability of each partner from one another. LLP's are established for service or professional types of businesses. Unlike the LP there is no general partner.
LLP Taxes
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The way the partners are taxed in an LLP is through taking the net profits of the business and then distributing the profits according to each partner based upon ownership. At which point, each individual reports the profits or losses on their own tax returns.
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