If you and your partner are working on a new company, understanding the difference between an LLC and Partnership can help you choose the right structure for your business. Since sole proprietorships generally only apply with single owners, and corporations are beholden to stockholders, LLCs and Partnerships offer flexible governance and co-ownership. It’s best to consult with a business formation lawyer to see which structure works best for your business needs.
Benefits of Partnerships
The primary benefits of partnership is the flexibly of its management structure. Unlike a corporation that has a rigid management structure and an LLC that is run by members, partnerships may be managed in one of two primary ways, depending on the needs of the business and the wishes of the company’s owners. Generally, partnerships are either managed generally or in a limited capacity. Owners in a general partnership manage the company and assume responsibility for its financial and legal responsibilities mutually. A limited partnership contains partners who only serve as investors. This flexibility of management makes partnership an attractive structural option for many business owners, including many family business owners.
The primary drawback of forming a partnership is that owners remain personally liable for any losses, debts or liabilities that the business incurs. This is one of the big differences between a LLC and Partnership. While forming an LLC insulates the personal assets of the company’s owners/members, forming a partnership leaves those personal assets vulnerable.
Advantages of a Limited Liability Company
One of the primary advantages of a Limited Liability Company is that owners (commonly referred to as members) are allowed limited liability for company debts, losses, and corporate wrongdoing. Unlike partners, members cannot generally have their personal assets seized or otherwise compromised as a result of financial challenges within the business. An additional advantage of forming an LLC is that founding members may choose whether the company is taxed as a partnership or as a corporation. This is especially helpful if members would prefer to be taxed at the corporate level as opposed to being taxed on their personal returns.
However, the management structure of LLCs is more rigid than it is for partnerships, which is not a reality that works for every company. Member-managed LLCs allow each member to act on behalf of the business in legal and financial capacities. Manager-managed LLCs are a bit more complex, as they may involve the hire of outside management or a combination of managers. This is another important difference between LLC and Partnerships. Some companies simply benefit from the limited partnership model more so than they would from an LLC model.
Consult a Business Formation Lawyer
If you are interested in formally registering your business, it’s a good idea to get in touch with a business formation lawyer at LawTrades. We have assisted more than 5,000 startups in matters ranging from incorporation to financing, compliance to intellectual property protection, recruitment to drafting contracts. Whether you need temporary assistance for a single legal issue or a full range of services, the affordable, efficient and effective LawTrades approach is sure to meet your needs.