What functional distinction exists between a general partnership and a limited liability partnership?

The explanation for why the answer is that a limited liability partnership (LLP) provides its partners with limited liability pertains to the fundamental characteristics that differentiate partnerships. In a general partnership, partners share equal responsibility for the management of the business and are personally liable for the debts and obligations of the partnership. This means that creditors can pursue the personal assets of the partners if the partnership cannot meet its financial obligations.

In contrast, an LLP is designed to provide its partners with limited liability protection, similar to the limited liability benefits enjoyed by corporate shareholders. This means that the personal assets of the partners in an LLP are generally protected from the debts and liabilities of the partnership. Importantly, this feature encourages individuals to participate in business ventures without the same level of financial risk that comes with a general partnership.

The other choices do not correctly describe the functional distinctions between these types of partnerships. For instance, a general partnership does not have limited liability; that protection is a key characteristic of an LLP. Furthermore, while it is true that a general partnership typically requires fewer formalities, this is not a defining functional difference in terms of liability and management. Lastly, there is no restriction on the number of partners in an LLP, so stating that it cannot have more than two partners