Having an experienced and knowledgeable accountant is a must for any business. In many cases, individuals can also have complicated tax situations that require them to turn to a professional when tax season comes around. If you have a background in accounting and finance, you may be ready to set out on your own and launch an accounting firm. As you navigate the early stages of the business planning process, one question you may find yourself asking is: Can an accounting firm be an LLP or LLC?
There is a lot of thought that goes into any entrepreneurial endeavor. You need to have a firm grasp of the principles of your market, an understanding of your competition, as well as how to operate a business on a day-to-day basis. Handling payroll, hiring employees, and ensuring that bills are paid and taxes are in order are all important tasks. It can also be prudent to have a thorough knowledge of the differences between LLPs and LLCs, especially if your business is growing rapidly.
Understanding the Basics of a Limited Liability Partnership
While going into business completely on your own can be an especially rewarding experience, sometimes you need a little help. In some scenarios, a general partnership is a logical move when starting a new enterprise. A general partnership is, as its name suggests, an agreement between two or more individuals to go into business together. Depending on your state’s laws, a general partnership can be fairly informal–oftentimes this arrangement can be set into motion with just a simple handshake.
As businesses evolve, however, and more and more clients come through your doors, you may decide that you need an agreement that offers a layer of legal protection. A limited liability partnership is essentially a general partnership that can shield members from lawsuits and debts. In some states, with an LLP, there is a degree of liability that can be applied to individual partners, but that only goes so far as consequences that arise from their direct actions.
Is a Limited Liability Company Right for You?
Do you thrive on structure? Are you looking to give your business an added layer of organization? In some cases, an LLC can make sense for accounting firms and other businesses. Similar to an LLP, a limited liability company is not viewed as a “business” by the Internal Revenue Service (IRS), which means that there are tax benefits that come with this distinction. In many states, however, an LLC will have much stricter rules with regards to its structure than its LLP counterparts.
Because of this rigidity, an LLC is not necessarily right for every type of business. Different states do have different rules about structuring LLCs, so you will want to consult with your local jurisdiction before arriving at a decision. In an LLC, all owners are shielded from legal liability, which, on top of being deemed as a “pass-through” entity by the IRS, make it a desirable formation model for business owners.
In Summary: Can an Accounting Firm be a LLP or an LLC?
So, you have a roster of clients and you and your partner are ready to kick off your own accounting firm. How do you choose whether you start an LLP or an LLC? Well, a wise first step would be to check with your state’s regulations. At this point in time, LLPs are only available in 40 states, while every state allows the formation of an LLC. In most cases, LLPs are used for professional services, such as legal practices, dental and medical offices, architect, and accounting firms. LLCs are more broadly applied to businesses of all types.
Ultimately, your decision is going to come down to how you wish to manage your business. In an LLC, your business can be managed by members as well as outside sources and non-members. In an LLP, you will need to designate a managing partner who will in turn need to assume some liability.
In short, an LLP is often the pathway to go down if you are starting an accounting firm. As both you and your partners are likely to be licensed accountants, it makes sense to have similar stakes and investments–and in turn, liability–in your business.
Form Your LLP or LLC Online
Whether you are opting for an LLC or LLP, there will be a fair amount of paperwork to be completed. Once you have finalized the details of your business, as well as your partnership agreement, you can source the correct forms and documents and submit them to your state’s Secretary of State office for processing.
Of course, there is also a simpler option. At the Corporation Center, we offer online forms for establishing LLCs in all 50 states. We organize our site’s navigation in an easy-to-process way, so you can quickly find the forms you need. To learn more, contact us today.