If you are considering forming your own business or making the next step of incorporating or forming an LLC, you have many business entities to choose among. Limited partnerships and limited liability companies (LLCs) are now the most popular entities for small businesses, although there is no one option that is best for every business. Here is what you should know about these two options to decide which is best for you.
Understanding a Limited Partnership
A limited partnership (LP) has general and limited partners. General partners are those involved in business management with all liability for any obligations of the business. A limited partner does not participate in management and has no liability beyond the money they have put into the business. While limited partners can benefit by receiving a share of profits, they are protected against the debts and obligations of the business.
LPs are a popular option because they are attractive to investors who do not want to participate in the business or share risk. Investors prefer limited partnerships over LLCs. An LP does not have income taxed at the business level as a pass-through entity, and general partners enjoy total control.
Understanding a Limited Liability Company
An LLC is a hybrid entity, as it offers the benefits of a sole proprietorship, corporation and partnership. Members of an LLC have limited liability protection, the same as shareholders in a corporation, and the LLC can be owned by individuals, corporations or trusts. Many business owners choose to form an LLC for flexibility and few formalities.
Forming an LLC comes with several advantages. You will enjoy limited liability, which means your business debts and obligations will not affect your personal assets. LLCs are pass-through entities, so there is no double taxation. There is no limit to the number of owners you can have, you can set membership classes while issuing stock, and you can operate as member-managed or manager-managed.
Neither option will work best for all small businesses, so it is important to discuss your choice with an attorney or corporate services company to review your options and tax ramifications. Learn more about your options by clicking here or find out more about types of businesses.
Understanding a Limited Partnership
A limited partnership (LP) has general and limited partners. General partners are those involved in business management with all liability for any obligations of the business. A limited partner does not participate in management and has no liability beyond the money they have put into the business. While limited partners can benefit by receiving a share of profits, they are protected against the debts and obligations of the business.
LPs are a popular option because they are attractive to investors who do not want to participate in the business or share risk. Investors prefer limited partnerships over LLCs. An LP does not have income taxed at the business level as a pass-through entity, and general partners enjoy total control.
Understanding a Limited Liability Company
An LLC is a hybrid entity, as it offers the benefits of a sole proprietorship, corporation and partnership. Members of an LLC have limited liability protection, the same as shareholders in a corporation, and the LLC can be owned by individuals, corporations or trusts. Many business owners choose to form an LLC for flexibility and few formalities.
Forming an LLC comes with several advantages. You will enjoy limited liability, which means your business debts and obligations will not affect your personal assets. LLCs are pass-through entities, so there is no double taxation. There is no limit to the number of owners you can have, you can set membership classes while issuing stock, and you can operate as member-managed or manager-managed.
Neither option will work best for all small businesses, so it is important to discuss your choice with an attorney or corporate services company to review your options and tax ramifications. Learn more about your options by clicking here or find out more about types of businesses.