The difference between LLPs and LLCs

Illinois business owners who are deciding whether it may be time to incorporate might be surprised to learn there are many options available to them. Limited liability companies and partnerships are two choices. Learning the nuances of each may make the decision easier.

While LLPs and LLCs are similar in nature, there are differences that may influence the decision to choose one over the other in order to best suit the needs of a business. An LLP, in addition to offering tax advantages, also offers protection to the owners. It separates individual members of the partnership so that they are not liable for debts of the business or wrongful acts committed by another partner. One person must be named as manager or general partner, and this individual is liable for business debt. It is also easy to transition a partnership into an LLP simply by filing with the appropriate agency. Professionally licensed businesses such as law firms and physicians' offices are frequently set up as LLPs.

An LLC may be advantageous for smaller businesses when there are multiple owners involved. An LLC has the advantage of separating business liabilities and assets from personal ones and protects the owners from having their personal assets attached in a judgment. LLCs also require filing a Form 1065 with the Internal Revenue, which then checks it against the tax filings of the members. The advantage of an LLC is that it protects all members from financial liability.

When structuring a new business or making decisions about business formation, an owner may find it prudent to consult with an attorney well-versed in business law. An attorney may be able to advise as to the advantages of setting up a corporation to best suit the needs of the business and assist in filing the appropriate papers.

Source: Houston Chronicle, "Limited Liability Partnership Vs. Limited Liability Company", Eric Feigenbaum, November 17, 2014

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