All three of these structures exist to answer one question differently: whose personal assets are on the line if the business cannot pay what it owes. An LLC answers it the same way for every owner. An LLP answers it for a partner's colleagues' mistakes but not reliably for a partner's own. A limited partnership answers it only for the owners willing to give up a say in running the business, and gives nothing to the one who keeps that say. Two or more owners choosing among them are really choosing how liability and control trade off against each other, not picking a tax structure: all three are typically taxed the same way as a partnership by default.

This is general information, not legal advice for a specific business; a lawyer in the owners' state should confirm which structure that state's statute actually supports, since all three vary more by state than their federal tax treatment does.

Who is personally liable, under each structure

Liability and control compared

Structure Owners' liability Who can run the business Where it is registered
LLP (limited liability partnership) Partners are not personally liable for the partnership's obligations merely by being partners (UPA 1997 §306(c)); a partner remains liable for their own malpractice or negligence Every partner, same as a general partnership Most states let any partnership register; a handful, including California, Massachusetts, New York, North Dakota, Oklahoma and Oregon, limit it to licensed professions (check the state in the [filing fees table](/llc-and-llp-filing-fees-by-state/))
LLC (limited liability company), multi-member Every member's liability is generally limited to what was invested, regardless of whether that member manages the business Member-managed or manager-managed, member's choice in the operating agreement Every state; the most widely available of the three for a business with no professional licensing angle
Limited partnership (LP) At least one general partner has unlimited personal liability; limited partners are liable only up to their contribution, but can put that protection at risk by taking part in control, depending on the state General partners only, by default; limited partners who want a say usually have to become general partners or negotiate specific management rights Every state, but always needs at least one general partner willing to carry unlimited liability, directly or through an LLC acting as the general partner

The LP's structure explains why so many limited partnerships in practice have an LLC, not a person, as the general partner: it lets the business keep the LP form (useful for the tax treatment of limited partners below, or for raising money from passive investors who want no say) while putting a liability-shielded entity, rather than a person, in the one seat that carries unlimited exposure.

Two owners starting a business together rarely have a reason to choose the LP form on its own merits; it earns its place when a third party is involved who wants a financial stake and nothing else, which is why it shows up most in real estate syndications and family-owned investment vehicles rather than in two-founder operating businesses. An LLP, by contrast, mostly shows up where state licensing rules require it: several professions (law and accounting firms especially, in states that restrict who can own a share of the practice) cannot simply form an LLC, so the LLP is the only limited-liability option open to them, restriction or not.

The one tax difference that survives the liability question

Where LLPs and multi-member LLCs mostly converge on tax treatment (both default to partnership taxation, and both expose an actively working owner to self-employment tax on earnings from the business), limited partnerships keep one distinction that neither of the others offers. Under section 1402(a)(13) of the Internal Revenue Code, a limited partner's distributive share of partnership income is excluded from net earnings from self-employment, meaning no self-employment tax on it, with one exception: a guaranteed payment to that limited partner for services actually performed for the partnership is not excluded and is taxed as self-employment income regardless.

The exclusion exists because Congress assumed a limited partner's income is a return on capital, not compensation for work, which is also exactly why it does not survive a limited partner who is actually running the business day to day and taking a guaranteed payment for it. An LLC member has no equivalent carve-out in the statute itself; member-level self-employment tax treatment for LLCs has been litigated and argued over for years with no single bright-line rule as clean as section 1402(a)(13)'s. A business weighing an LP structure purely for this exclusion should treat it as a benefit for genuinely passive limited partners, not a label to put on a partner who is doing the work.

For a two-owner business with no professional licensing requirement and no passive investor to accommodate, the real choice is almost always between a general partnership, an LLP, and an LLC, covered head to head in general partnership vs LLC for two owners; a limited partnership is usually the right call only once an outside investor wants in without a say. Whichever structure is chosen, the personal exposure that remains, including an LLP partner's own malpractice and a general partner's full liability, is covered in are you liable for your business partner's debts.