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  1. Home
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  4. LPs vs LLCs

An Overview of LPs vs. LLCs: Which Is Best?

  • Intro
  • Basics of an LP
  • Overview of an LLC
  • Get Expert Help

Overview

If you're like many people, you may be considering forming a separate legal entity for your business to protect yourself and your personal assets. There are several different options, but two of the most common methods are forming a Limited Partnership (LP) or a Limited Liability Company (LLC).

Both types of business formation offer protection from personal liability and some additional tax benefits. However, there are some fundamental differences between the two options. There may also be some minor differences in how LPs and LLCs are formed and managed, depending on local and state laws. This guide covers the basics of LPs vs. LLCs so you can figure out which is the best option for your unique circumstances.

Basics of an LP

While an LLC can exist with a single member, an LP must have a minimum of two: at least one general partner and one or more limited partners. These two types of partners have different amounts of power, responsibility, and liability. General partners accept a larger share in the running of the company:

  • They have a say in management decisions.
  • They can participate in or oversee day-to-day operations of the business.
  • They assume complete (100%) personal liability for responsibilities, debts, and obligations related to the partnership.

On the other hand, limited partners have a smaller scope of authority and responsibility. In most cases, limited partners are simply investors in the company. They

  • Can provide capital contributions to the partnership
  • Do not participate in management or daily operations
  • Accept no personal liability for debts and obligations related to the partnership
  • Earn a share of the profits in accordance with their investments

Limited partnerships can provide many benefits for certain business models, especially in terms of raising funds. You may find more investors who are willing to contribute because they don't incur personal liability. Additionally, you and your general partners can manage the partnership efficiently without having to involve limited partners in daily operational decisions. LPs can also allow for tax deductions, although the exact nature of tax law varies between states.

Overview of an LLC

Comparing the details of LPs vs. LLCs may lead you to decide that forming a limited liability company is the best option for your business. In general, an LLC offers more flexibility than an LP. In an LLC, there can be many partners, and all of them may participate in the management of the company. When forming the LLC, you can outline specific responsibilities and rights for members in the Operating Agreement. You and your partners also have flexibility to create rules for distributing profits as you like; distribution doesn't have to correlate to each member's capital contribution.

One of the main differences between an LLC and LP relates to liability. In an LLC, all members are protected against personal liability for company debts. Like partnerships, LLCs offer several tax advantages, some of which can be especially useful for sole proprietorships.

Start Your Partnership Off Right With Expert Help

As you can see, learning the basics of LPs vs. LLCs can help you determine which one is right for you and your business. You may want to form an LP to maintain control of management decisions while encouraging investors to provide capital contributions. Alternatively, you and your partners may prefer the LLC model that provides everyone with liability protection and flexibility in terms of operational decisions and profit distribution.

No matter which way you decide to go, working with experts to form the legal entity for your business is essential. The trained staff at MyLLC.com has the knowledge to help you through every step of the process, including drafting and filing paperwork and providing services tailored to the legal specifics of each state and the District of Columbia. To get started, call 888-886-9552 or use the online contact form.

 
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Disclaimer: This information is made available by MyLLC.com, Inc. (the "Company"), and is intended for educational purposes only, and it is not legal or tax advice. No action should be taken in reliance on any information in or on this site without verification with legal or tax counsel, after review of the facts and current law, that the action to be taken is appropriate under the circumstance. Except as expressly provided to the contrary in writing by the Company, the materials contained on this site are provided on an "as-is" basis without warranties of any kind, either express or implied. Company disclaims all other warranties, express or implied, including, without limitation, implied warranties of merchantability, fitness for a particular purpose, title and non-infringement as to the information, content and materials on and in the site. Company does not represent or warrant that materials on and in the site are accurate, complete, reliable, current or error-free.
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Nevada's Tax Laws have changed
Effective July 1st, 2015:
Be aware that if you are currently incorporated in the state of Nevada, or are considering becoming incorporated in Nevada, 2015 changes to the tax laws may directly affect and increase the costs to your business!

What is your first step? Simply choose which of the following two options applies to your business:

ALREADY INCORPORATED in the state of Nevada? 2015/08/15 - Your annual fees increased from $325 to $650, and that’s not including the Commerce Tax if it applies to your business! Further, you will now be required to file your tax return with the NV Department of Taxation with June 30th as the fiscal year, not the calendar year! Review these changes with your tax advisor immediately! If you choose to re-domicile your corporation in another state, MyLLC will file the re-domestication paperwork for you!

TRYING TO DECIDE WHICH STATE is best to incorporate your new business? MyLLC strives to provide you with up-to-date information and exceptional customer service. Contact your tax advisor to review your options and then talk to MyLLC's Incorporation Professionals to assist you in filing your articles of incorporation as well as provide you with Registered Agent services!

MyLLC is committed to assisting you in this process but you must contact us today!

Call us toll free at 888.88.MYLLC or fill out the contact form so one of our experts can help you.
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