Are LLCs Partnerships or Corporations?
LLCs are a unique type of business model that has only existed in the United States since the 1970s. The question of whether LLCs are partnerships or corporations is actually somewhat misleading, for they are really a hybrid of both. As such, they share advantages of both types. This is not to suggest that one should necessarily dismiss forming as a partnership or corporation. A LLC attorney in College Station will evaluate your needs and help you determine what is best for you.
Forming the Entity The requirements for forming an LLC are much like those for a corporation—the owners must file documents with each state where the company will operate. Both LLCs and corporations also need to set up operations procedures and rules to avoid problems later. A partnership, on the other hand, can be formed without the filing of documents.
In addition, LLCs and corporations can form either under a single owner or multiple owners. Partnerships by their nature have multiple owners; moreover, they tend to be somewhat limited in size, whereas LLCs and corporations are often quite large.
One major consideration with partnerships is that the death, retirement, or withdrawal of one partner can lead to the closing of the entire business. Such is not the case with LLCs or corporations.
Liability and Taxation If one is concerned about protecting personal assets, a partnership is probably not the best option. Owners of LLCs share with corporate owners/shareholders a fair degree of protection from liability lacking in partnerships. Creditors cannot seize personal assets if the company is sued, and the owners are only liable for company debts in correlation to the amount they have invested in the business.
LLCs share a unique flexibility not available with either partnerships or corporations when it comes to taxation. LLCs can enjoy flow-through taxation, in which tax liability flows through the business to the owners' personal tax return. Owners may also opt to have the business taxed in the same way as corporations, where both profits and dividends paid out to shareholders are taxed. As a LLC attorney in College Station can attest, this “double-taxation” is, indeed, one of the most compelling reasons many business owners form their companies as LLCs.
Ultimately, whether to form your business as an LLC, corporation, or partnership is a matter which can only be determined after careful consideration of the advantages and disadvantages of each.
Call a LLC attorney in College Station if You Have Questions If you have questions about forming your business, or need assistance with another legal matter, a LLC attorney in College Station can help. Call Peterson Law Group today to arrange a consultation at 979-703-7014.