LLP and an LLC – Find Out the Difference!
Before registering your business, you should be aware of the differences between a limited liability partnership (LLP) and a liability company (LLC).
With having your own business, you should know and understand the difference between each other. So, the real question is, how different can they be?
If you are on the path of choosing the right entity for your business, you should learn and know the important acronyms in this business, so you can spot the difference.
It’s crucial to understand how each structure works and in which way they are different from each other. Having all that information can help you make a well-informed and researched decision about how to set up your business.
With this in mind, it’s not a bad idea to seek out some tax and legal advice before setting up any business entity. Here you can find out the difference between an LLP and an LLC and save yourself the trouble.
What Is the Real Difference?
An LLP or Limited Liability Partnership is a universal partnership that has more than two owners. Consider it as some type of a hybrid of a corporation. So, the partners can take the advantage of the LLP.
Professional businesses can be a good example since they are commonly an LLP.
An LLC or Limited liability Company is an entity that helps you operate your own business.
Having an LLC, you can pick up the ownership share that your business collection s your return, with your social security number.
Management Structures – What Are the Real Differences?
You should know that there are two management structures for an LLC that are the most common.
Every member of an LLC can run their business by themselves.
On the other hand, they can always hire a manager to help manage the business if it gets too much.
Having that in mind, probably the biggest difference between an LLP and LLC is how they manage business. As previously mentioned, an LLC can be managed in two different ways, while on the hand, the LLP is similar to a partnership. Both the business partners in an LLP are equally responsible for the business and also managing it.
Now that you have the basic information, you should know that the main reason people choose LLC is its limited liability protection.
This is very easy to explain; if someone sues your business and you potentially lose the lawsuit, you don’t have to worry. All of your personal belongings are protected and cannot be seized.
The Difference in Tax Benefits for LLC and LLP
An LLC can be taxed as a sole proprietorship, a C corporation, an S corporation, or a partnership. On the other hand, an LLP is only taxed as a partnership.
All of the earnings go directly to the members, and each everyone must report the earnings they have on personal tax forms. Having this in mind, it is very important to choose the business structure that offers the best protection for your business. It also wouldn’t hurt to have at least possible legal and tax consequences.
Having Partners in an LLP
In the US, around 40 states allow the creation of an LLP, and the laws are different for every state.
In some states, there is a limit on what professions can have an LLP. So, to avoid that, we recommend that you check the status in your state.
For example, if you have a law firm that’s in a state that has a law that states that the firm has to be an LLP, you would need to register it as a law firm.
Now that you have all the necessary information, you should think about the benefits and downsides of each entity. Whether it’s an LLP or an LLC, and decide which one is best for your business.
Your Part Time Accountant has a set of professionals that can help you with any questions and guide you while choosing the best option for you!