Forming an LLP Versus an LLC in Alabama: Pros, Cons & More

LLP Versus LLC in Alabama

Alabama can be a fertile ground for business. If you are considering launching your own enterprise in the Heart of Dixie, there are some practical matters that you will want to sort out before opening your doors for business. One of the first decisions you will want to make involves how you are going to structure your business. Maybe you and your associates are considering a Limited Liability Partnership (LLP), or perhaps a Limited Liability Company is a better match for your needs. Of course, you could also be stuck at an impasse between the two, weighing out an LLP versus LLC in Alabama.

Fortunately, utilizing our resources here at Corporation Center can help. Just as you did not go into business without ample preparation, you would not wish to land on a business formation strategy without having considered the pros and cons. Before you decide on an Alabama LLC or LLP, make sure you understand the nuances of both.

Why Should You Form an LLC?

Limited Liability Companies are available to business owners in all 50 states, and in Alabama, they are a popular option. An LLC can have one or more owners–formally called “members”–and can be taxed as a corporation, partnership, or sole proprietorship. Many will opt for the “sole proprietorship” option, as it grants an LLC “pass-through” status with the Internal Revenue Service (IRS). This means the IRS does not tax the profits of the business off the top, rather they pass through to the members of the LLC who in turn pay income taxes.

An LLC also affords its members the protections of limited liability. Should your business become subject to lawsuits or bankruptcy, members of the LLC will be able to shield their personal assets (homes, savings accounts, 401k plans) from any potential legal judgments.

LLCs are somewhat flexible in their management possibilities, as they can have one or more members. They are also relatively inexpensive to set up and do not require much in the way of reporting. 

Making Sense of Limited Liability Partnerships

A Limited Liability Partnership can be thought of as an extension of a General Partnership. An LLP must have at least two members in the State of Alabama. An LLP can take part in similar tax scenarios to those of an LLC, though they can only be taxed as a partnership. 

The concept of limited liability can be found in LLPs, but with a slight wrinkle. Individual partners in an LLP can be found liable should they demonstrate provable negligence. Think of it this way: If an attorney in a law firm is found to have committed malpractice, the other attorneys will not be found liable for their actions. Because of this accountability mechanism, LLPs are very popular among licensed professionals.

LLP Versus LLC in Alabama

LLP Versus LLC in Alabama: We Can Help

Whether you decide to form an LLC or LLP, you will need to submit documentation to the Alabama Secretary of State’s office. At Corporation Center, we can help you do this in a prompt, comprehensive manner by using our online forms. To learn more, take a moment to browse our site, or contact us today.