LLC vs Partnership — Which is Best?
General partnership is free but no protection. LLC costs $0 + state fee to form but protects your house, car, and savings from lawsuits. Here’s when to use each.
Partnership vs LLC — Key Difference
General Partnership: Two+ people start business together, no filing. Automatic when you do business together. No liability protection — if partnership sued, your personal assets at risk. Each partner liable for other partner’s actions.
LLC (Limited Liability Company): Legal entity filed with state. Separates personal and business. If LLC sued, your house, car, savings protected. Same tax flexibility (pass-through) but with protection. Costs $0 + state fee via Bizee or ZenBusiness.
Learn more at LLCGuidance.com and What is an LLC?
LLC vs Partnership Comparison
When to Choose Partnership vs LLC?
Choose General Partnership If:
- Testing idea with friend for 30-60 days, no clients, no revenue, no risk
- No contracts, no employees, no debt, no website taking payments
- You both understand unlimited liability and trust each other 100%
Even then, file partnership agreement. But this is risky — most attorneys advise LLC from day 1.
Choose LLC (Multi-Member) If:
- You have clients, contracts, revenue, website, or any risk
- You want to protect house, car, savings from business lawsuits
- You want to open business bank account (Mercury, Relay, Novo)
- You want to define ownership % (50/50, 60/40), voting, profit split, what happens if partner leaves
- You want to elect S-corp later to save self-employment tax
- You want to look legit to customers and vendors
Tax Differences
Both are pass-through by default — profit flows to personal tax return, no corporate tax. Both pay self-employment tax (15.3%).
LLC advantage: Can elect S-corp when profit > $40k-$50k/yr. S-corp saves ~$3k-$6k/yr in SE tax — partnership cannot elect S-corp unless it becomes LLC or corporation first. See how LLCs pay taxes and LLC vs S-corp.
Best Services to Form LLC (Instead of Partnership)
If you’re in partnership now, convert to LLC in 10 minutes. File Articles of Organization with state — costs $0 + state fee.
Why: $0 + state fee, operating agreement for multi-member LLC free, defines 50/50 or custom split, 1 year free registered agent. Cheapest way to convert partnership to LLC.
- $0 + state fee
- Multi-member OA included
- 1 year free registered agent
- EIN free
Why: ZenBusiness specializes in partnerships converting to LLC — $0 + state fee, worry-free compliance, OA with partnership roles, EIN, banking.
- $0 + state fee starter
- Multi-member OA with roles
- Worry-free compliance
- 1 year free agent
Why: If partnership has lawsuits risk, need best agent for service of process. Same-day scanning, privacy, compliance. Agent-first company.
- Agent-first specialization
- Same-day scanning
- Privacy protection
- $0 + state fee LLC
Why: If partnership has complex profit share, IP, non-compete. Attorney-drafted operating agreement, 30-day attorney consult.
- Attorney-drafted multi-member OA
- 30-day attorney consult
- Partnership conversion guidance
- Most recognized brand
How to Convert Partnership to LLC
1. Choose state (usually where you do business). 2. File Articles of Organization — list both members, registered agent. 3. Create multi-member Operating Agreement — defines % ownership, voting, capital contributions, what happens if partner leaves, non-compete. 4. Get EIN (free). 5. Open new LLC bank account, move assets, update contracts, close partnership DBA. Takes 1-2 days online.
More at Multi-member LLC guide and LLC requirements.
LLC vs Partnership — Which Should You Choose?
Partnership is free and instant, but unlimited personal liability — your personal assets at risk for partner’s actions. No credibility, no bank account, dissolves when partner leaves.
LLC costs $0 + $45-$250 state fee via Bizee/ZenBusiness, protects personal assets, defines ownership, can elect S-corp to save taxes, looks professional, continues if partner leaves.
Recommendation: If you have any clients, revenue, contracts, or risk — form LLC, not partnership. Use Bizee for cheapest, ZenBusiness for worry-free, LegalZoom for attorney review.