Most states offer both limited liability company and limited liability partnership formations. While the two have some commonalities, they also have some very distinct differences, particularly with regard to liability exposure. Your choice may depend largely on your business type and your goals. Limited Liability Company LLC owners, called "members," can manage their businesses or hire professional managers.
Limited liability can apply to any non-corporate business, in any state, and provides characteristics of a corporation and a partnership.
Individual states regulate the operations of the LLCs. However, companies with limited liability are different and distinct from a sole proprietorship, partnership, and corporation. Limited Liability Companies Limited liability companies gained recognition because they have similar characteristics of corporations allowing owners limited personal liability for business debts and actions.
They also provide characteristics similar to partnerships, meaning flexibility and taxation benefits.
LLCs are state regulated and most states do not limit ownership. LLCs cannot possess more than two characteristics of a corporation, which are centralized management, continuity of life, free transferability of interest, and limited liability Liebert-Hall, nd.
Furthermore, the federal government does not classify LLCs for tax purposes. Instead, the company must file taxes as a corporation, partnership, or sole proprietorship. The LLC can choose its classification.
To be considered as an LLC corporation or partnership, the organization must have two or more members. In addition, single entities can choose to be taxed separate from the owner. However, banks, insurance companies, and nonprofit organizations usually cannot be an LLC.
The next two sections will discuss limited liability corporations and partnerships. Corporations Members in an LLC normally possess only an economic interest in the business. These memberships can transfer to other members of the business or non-members. Membership interests do not allow members to take part in daily activities, voting, or management unless they are accepted as a new member.
The acceptance of new members depends on state regulations and articles of organization, which usually requires a unanimous vote.
Leaving a LLC is usually easy, unless the articles of organization or state put a restriction on withdrawal. Members can receive his or her contributions unless otherwise stated in the articles. Dissolution occurs when the LLC legally ends.
This usually occurs with a death, disability, withdrawal, bankruptcy, or expulsion of members Farlex, Inc. The LLC may be extended with the consent of members and preparing a new article of organization.Limited partnerships (LPs) and limited liability partnerships (LLPs) are both businesses with more than one owner, but unlike general partnerships, limited partnerships and limited liability partnerships offer some of their owners limited personal liability for business debts.
These include limited liability companies and limited liability partnerships. Responsibility for Business Debts The most important distinction between partnerships and limited companies has to do with who ultimately is responsible for the debts of the business.
To avoid the personal liability of a general partner, an entity such as an LLC is often created to serve as the general partner of a limited partnership.
The LLC was created to offer the flexibility of a partnership while providing corporation-like protection against personal liability. A limited partnership is a type of partnership that consists of at least one general partner and at least one limited partner. A limited liability partnership does not have a general partner.
Apr 27, · A Limited Liability Company is a relatively new business structure allowed by state statues. LLCs are popular because, similiar to a corporation, owners have limited personal liability for the debts and actions of the LLC.
While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships. Next Up Limited Liability.