The major significant difference between a partnership and an LLC is the issue of personal liability of the members for business debts and obligations. In a partnership, the partners are jointly and severally liable (meaning they can come after one or both partners) for any debts and obligations of the partnership. Partnerships cannot own property outright, they own in the names of the partners.
An LLC on the other hand is a separate entity capable of being sued and suing on its own and the members are not liable for the obligations and debts of the LLC unless they have signed personal guarantees for them. An LLC (which really is the newer form of a Sub-S corporation
) is a separate corporate entity but the taxes flow through to the members who claim the profits on their personal income taxes and the LLC files tax forms and issues K-1 forms to the members, but the LLC itself does not pay the taxes.
When an LLC is sued, it is sued on its own and must be represented by an attorney like any other corporation
. As long as all of the corporate formalities are followed with the LLC, such as not co-mingling the LLC money with your personal money, holding annual meetings, keeping corporate minutes, having adequate insurance, then anyone suing cannot pierce the corporate veil and sue the members personally.
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