The Benefits of LLCs and LLPs

Limited liability corporations (LLC) and limited liability partnerships (LLP) are two new business entities created to mix some of the properties of corporations, partnerships, and sole proprietorships. They have several unique benefits for emerging companies.

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Benefits of LLCs
An LLC is a hybrid organization that has characteristics of both a corporation and a partnership. Its members — comparable to corporate shareholders — receive interests in the LLC in exchange for property, money, or services.

Like a corporation, an LLC is a separate legal entity that limits the liability of its members. However, it has the tax benefits of a partnership. LLCs are also free of many of the legal requirements that govern corporations; this includes annual reports, director meetings, shareholder requirements, and so on.

For a time, almost every state required an LLC to have two or more members, but that is no longer the case. This important change came in response to revised IRS regulations that clearly permit single-member LLCs. As a result, in most states, if you plan to be the sole owner of a business and you wish to limit your personal liability, you can choose between forming a corporation or an LLC.

Benefits of LLPs
A limited liability partnership (LLP) is simply a general partnership whose partners enjoy some protection from personal liability.

It is not a separate entity for income tax purposes — profits and losses are passed through to the partners. Typically, though, a partner in an LLP is personally liable only for his or her own negligence or that of an employee working under the partner's direct supervision. The partner isn't personally liable for the negligence of anyone else in the firm. That's helpful, but as a partner in an LLP, you're still personally liable for a large variety of partnership debts not involving your own negligent acts — for example, obligations owed to business creditors, lenders and landlords — regardless of which partner incurred the obligation for the partnership.