A lot of thought, preparation, and research go into starting a business. Long before you make your first sale, there is a long list of items that you need to consider and plan for. First, you need to determine your market. Then you need to create a business plan that makes economic sense for your goals. If you have settled on office space or a retail front, and it is time to get the process in motion of starting your business, you may only have a few more formalities to sort out. One such question you may be wondering, however, is: LLP or LLC, which is better?
Let’s face it, when you start a business there can be piles of paperwork and other bureaucratic issues to navigate. Between drafting by-laws, filing articles of incorporation, sorting out payroll, and registering with local and federal tax agencies, there can be a lot to keep up with. Before you get too far down the road in your business planning adventure, a wise first step is to understand the differences and unique benefits of LLCs and LLPs.
What Is an LLC?
In your time spent in the business world, or even as a consumer, you have probably noticed the letters “LLC” following the names of certain businesses. Those three letters are shorthand for “Limited Liability Company.” A key term of that acronym to pay attention to is “Company,” as that means this entity is not a corporation, sole-proprietorship, or partnership. That can be an important distinction for tax purposes.
An LLC allows for more flexibility in some areas than, say, a corporation. Depending on your state’s laws, a corporation may have to adhere to more rules than an LLC. With the formation of an LLC, you can create a roadmap for how your business will function. As its name suggests, you will also shield your personal finances from liability in the event of your business taking on insurmountable debt.
An LLC can have one or several owners. Again, an LLC does not need to follow the strict structure that a corporation establishes. Creating an LLC can also ensure that your business retains a completely unique name, as states do not allow more than one LLC to share a moniker.
What Is an LLP?
“LLP” stands for “Limited Liability Partnership.” In many ways, it is similar to a Limited Liability Company, in that it does minimize liability for the individual partners. One key difference, however, is that in an LLP, individual partners can still be found liable in, say, a lawsuit, but only so far as their own negligence occurred.
An LLP is essentially a more evolved version of a general partnership. In a general partnership, two or more people venture into business together and do not submit legal filings. With an LLP, there is an added layer of legal protection.
Generally speaking, an LLC is going to provide more liability protection, but that is somewhat dependent on the laws of the state in which your business is established. While an LLC can be taxed as a corporation, partnership, or sole proprietorship, an LLP can only be taxed as partnership.
LLC or LLP: Which is Better for You?
What are the needs of your business? What are the goals for you and your partners? What are your tax interests? These are all considerations that you will want to make before deciding on establishing an LLC or LLP. There are also management structure aspects that may want to weigh. For example, an LLC can have one owner, but an LLP, by definition, must have at least two.
Once you have done the legwork of figuring out which structure suits your business, it is time to do some paperwork. You will want to make sure that you source the correct legal forms, fill them out completely, and get them submitted to the proper state authority.
As a business owner, especially in the early days of a new venture, your time is at a premium. You may find that you have enough issues to navigate and decisions to finalize aside sifting through an endless sea of forms and filings. Surely, you would appreciate any method that could make establishing an LLC or LLP easier. That’s where the Corporation Center comes in.
We are a private service that specializes in helping business owners such as yourself file their business documentation online in a quick and efficient manner. Take a moment or two to browse the navigation on the left-hand side of our website. We offer easy-to-fill online forms for businesses in all 50 states. We also utilize an SSL-encrypted web portal, so the personal information of you, your business, and your partners will be transmitted in a safe and secure way. To learn more, contact one of our customer service representatives today.