The time has come. You have poured countless hours into creating a business plan to realize your entrepreneurial dreams. The next step, forming your business entity, is looming. Picking the right business structure can have long-term consequences for your business, so making an informed decision is crucial.

You know that you want the protection of a limited liability business, but what makes a limited liability company different from a limited liability partnership? According to the Missouri Secretary of State’s Business Services department, the two differ in how they are managed and how members of the business are held accountable.

Split management duties versus consolidated management

In a limited liability partnership in Missouri, all partners have an equal say in how to run the business. The business partners agree upon the division of management duties in a partnership agreement when they form the business.

In a limited liability company, the members of the LLC can choose to share management duties equally or appoint one person or a group to manage the business. These managers can be members or non-members of the LLC. When an LLC appoints someone to manage the business, the Missouri Secretary of State’s Business Services department refers to the business as “manager-managed.” The members of manager-managed LLC who are not part of the management team typically are not involved with business decisions.

How does personal protection differ between an LLC and an LLP?

An LLC protects its individual members’ personal assets. For example, if an LLC falls into debt, the creditor cannot sue to recover compensation from any individual member. Instead, the business itself becomes the liable party. All members of the LLC would lose a portion of their investment as a result.

In an LLP, individual members can be held personally responsible if things go wrong. For example, if an LLP sells products, and Partner A sold a defective product that caused someone harm, Partner B would not be liable in the personal injury dispute.

Make the right choice for your small business

When starting your business, optimism should not prevent you from planning for turbulence. Every business venture comes with some risks, but choosing the right business entity can mitigate those risks when trouble strikes. Your budding enterprise and personal financial well-being deserve careful consideration. If you or your business partners are unsure about which business entity is right for you, get help from someone with experience in forming both LLCs and LLPs.