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PA LLC vs Partnership

Limited Liability Companies and Partnerships share many similarities.  When comparing LLC vs Partnership, the main difference and advantage of an LLC over a Partnership is the limited liability protection granted to the LLC’s members.

In a partnership, the owners, or partners, are personally liable for bad business debts and potential lawsuits.

By default, both a multi-member LLC in PA and a partnership are treated the same way for tax purposes.

Both business organizations offer “pass through taxation”, so the business profits are distributed and reported on each of the individual owners’ tax returns.

Both an LLC and a partnership are fairly easy to set up.  An LLC in PA is required to register with the state in order to be created as a legal entity, however.  General partnerships are governed by common law.

Both LLCs and partnerships benefit from having written agreements setting forth how decisions will be made, how profits will be shared, how disputes will be resolved, how owners may be added or removed, and what occurs when the business is dissolved.

In an LLC these details are included in the Pennsylvania Operating Agreement.   In a partnership, they make up what is called a Partnership Agreement.

The formation and tax reporting of an LLC and a partnership are very similar, however, only the LLC offers the limited liability protection of personal assets to the business owners.