Limited Liability Corporation and Partnership Paper
Essay Preview: Limited Liability Corporation and Partnership Paper
Report this essay
Limited Liability Corporation and Partnership Paper
When starting a business, there are many decisions to be made. This is can be an exciting as well as a tough endeavor. Deciding on the type of company is important. There are several different types to choose from including Limited Liability Corporation and limited liability partnership. These two are the most common type of legal business organizations. Defining what each are and explanation over why a person would choose one over the other when establishing their own business will be discussed.
Limited Liability Corporation
A limited liability corporation combines the tax advantages of a partnership as well as the limited liabilities benefits of a corporation. Owners of limited liability corporations are usually referred to as members. Owners have limited and cannot lose more than they have invested. Limited Liability Corporation is permitted in most states and gives its owners limited liability and taxation as partnership (Gitman, 2009, pg.9). Advantages of LLC include limited personal liability, no federal taxes, unlimited amount of stockholders, consent of more than one class stock and loss is allowed to be deducted on members personal tax return. Disadvantages of LLC include complexity of paperwork and starting up getting legal assistance is a must and LLC are subject to more extensive government regulation.
Limited Liability Partnership
Limited Liability Partnership(LLP) is a partnership permitted in many states; governing statutes vary by state. All LLP partners have limited liability. They are liable for their own acts of malpractice, but not for those of other partners. The LLP is taxed as a partnership. LLPs are
frequently used by legal and accounting professional(Gitman, 2009, pg. 8). Advantages of LLPs include liability protection, flexibility and tax advantages. In a LLP, partners are not responsible for companys debts. When claims or lawsuits of negligence arise against the business, individual partners will not be held liable. In LLP, partners are offered the luxury of flexibility in the companys ownership. Partners have the control to decide how they want contribute to the operation of the business. Partners who have monetary interest vested in the company can decide not to have any authority over the business decisions but still have rights of ownership based on their percentage in the company. This however, can be a disadvantage because partners may make decisions that are best for them individually and collectively. Individuals in a LLP are responsible for filing self-employment taxes, personal income taxes and estimated taxes for themselves. The partnership itself is not responsible for paying taxes. The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and