Which Is Better: LLC Or LLP

Which is better: LLC or LLP? Many entrepreneurs ask this question when starting a small business. In some states, the differences between an LLC (Limited Liability Company) and an LLP (Limited Liability Partnership) don't mean much, while in other states, the regulations often have different requirements for those business owners seeking to set up one or the other.

When An LLC Is Better
An LLC is a flexible structure for a company that blends the legal and business aspects of a partnership with that of a corporation, creating advantages for the small business owner. It blends the liability protection of a corporation with the tax benefits and managerial flexibility of business partnerships. An LLC pays annual fees and files annual reports.

Unlike a corporation, an LLC can function without bylaws, minutes or set meetings. An LLC can be set up with as many "members" as desired. Because "partner" has a specific legal and business definition, those in an LLC are considered members. These members are not personally liable for any business debts, and profits go to each of the members.

Bottom Line: Starting a limited liability company is better for sole proprietors of small businesses or those interested in ownership but not necessarily management or operations.

When An LLP Is Better
A limited liability partnership is similar to an LLC in that the best of a corporation and a partnership is blended to get the most advantages for taxation and liability. It also blends the laws and regulations that apply to a partnership, as well as a corporation. When every investor chooses to be involved and active in the company, an LLP allows this to happen. Many professional groups form an LLP, such as a law firm or dental business. Accountants, architects and doctors may also find LLPs advantageous for their type of business-a group of professionals each with an interest in active management of the company.

The liability aspect of an LLP differs from state to state. Some states regulate that members are not liable for any debts or obligations of the LLP, while others regulate that members are only exempt from another member's wrongful acts. On the other hand, all partners benefit when the company is profitable, as profits are split among the members. Liability insurance is mandatory for LLPs, and they are usually required to file annual reports and pay fees. LLPs are also structured to avoid double taxation-when the earnings of a corporation are taxed and then the shareholder dividends are taxed again.

Bottom Line: LLPs are better for a group of professionals (at least two) who plan on active participation in the company.

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So... you've started your own business or organization and now you want to learn how to go about incorporating it. This guide is intended to show you just how to do it, even if it involves incorporating yourself or your family.

An LLC, or "limited liability company," represents a business entity created by two parties, which means problems stemming from the business affect the business only and not the parties' personal assets.

What does LLP stand for, and how can it help your business? A limited liability partnership might be a good fit for your new enterprise because it protects partners from each other and helps cut down on taxes.

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