veracity accounting firm logo

LLC vs. LLP :
Choosing the Right Business Structure


More Useful Insights


When anyone starts a business in Canada or any where else, one of the most important decisions they’ll make is selecting right business structure. LLCs and LLPs are two common options that offer liability protection to business owners.


What is a LLC: Limited Liability Company

A Limited Liability Company is a business structure that combines liability protection of a corporation with flexibility of a partnership. In Canada, LLCs provide a shield between business’s debts and personal assets of its owners.

This means that if the business faces financial difficulties or legal issues, the owners’ personal assets are generally not at risk.


What is a LLP: Limited Liability Partnership

A Limited Liability Partnership is a business structure often chosen by professionals like lawyers, accountants and consultants. It allows partners to combine their expertise while limiting personal liability for the actions of other partners.

In Canada, LLPs offer liability protection for individual partners against acts of their fellow partners or employees.


What are the Key Features of LLC?

  • Limited Liability :

Owners are not personally responsible for the company’s debts and liabilities.

  • Flexibility :

 LLCs offer more flexibility in management and decision-making compared to corporations.

  • Pass-Through Taxation :

Profits and losses of the LLC are passed through to the owners’ personal tax returns.

  • Separate Legal Entity :

An LLC is considered a separate legal entity, enhancing its credibility and professional image.


What are the Key Features of LLP?

  • Liability Protection :

Partners are not typically held personally liable for the negligence or misconduct of other partners.

  • Flexibility :

Partners can actively participate in management while avoiding full personal liability.

  • Pass-Through Taxation :

 Similar to LLCs, LLPs usually have pass-through taxation.

  • Professional Services : 

LLPs are commonly chosen by professionals in fields where personal liability is a concern.


How to Choose Between LLC and LLP?

The decision between forming an LLC or an LLP depends on various factors, including nature of business, level of liability protection needed and business owner’s long-term goals.

If a business owner looking for a structure that offers more management flexibility, an LLC might be suitable. On the other hand, if they’re in a professional service industry and want to protect them from their partner’s potential liabilities, an LLP could be the better choice.