Partnerships or LLCs?
It’s important to understand what sort of corporate structure would best protect you and your investors when creating a new company. Your business may be exposed to unnecessary legal and tax responsibility if you choose the improper organization.
The Difference Between Partnerships and LLCs
There are several things that divide the two structures. Read the points below for important things to consider when deciding between the two.
Taxation
Partnerships are not taxed separately from their owners. Instead, the gains and losses are “passed through” to the partners, who record them on their own tax returns. This arrangement is advantageous since it allows corporations to avoid paying significantly higher corporate tax rates. LLCs, on the other hand, have the option of being taxed as a corporation or passing the tax burden to the individual members. A business may profit from being taxed as a corporation under certain situations. It is beneficial to seek the advice of a tax specialist to discuss the specificities of the best tax structure for your business.
Personal Liability
An LLC was created to safeguard its members from being held personally accountable for the company’s debts. Members shall not be held liable for legal or financial obligations incurred by the business unless there are exceptional circumstances, including fraud. Meanwhile, a partnership necessitates some level of personal obligation on the part of the partners. A general partnership is made up of partners who manage the firm directly, each being individually accountable for the company’s obligations. A limited partnership is made up of one or more limited partners and at least one general partner. The general partner is in charge of the company and is personally accountable for all of its responsibilities. The limited partners are not involved in the day-to-day operations of the company. As a result, their responsibility is generally restricted to the amount they initially invested.
Corporate Owners
Each partner in a partnership must be a unique individual. Corporations are not permitted to join a partnership. They can, however, be members of a limited liability company. As a result, the partnership entity is not available for businesses with a corporation as a member.
