Limited Liability Corporation and Partnership free essay sample

Limited Liability Corporation and Partnership In the United States, limited liability companies increased rapidly throughout the past 10 years. These structures permit businesses to decrease federal tax liabilities by federal pass-through provisions (Bean Bilyeu, 1997). Limited liability can apply to any non-corporate business, in any state, and provides characteristics of a corporation and a partnership. Individual states regulate the operations of the LLCs. However, companies with limited liability are different and distinct from a sole proprietorship, partnership, and corporation.The purpose of the subject is to explain the roles of limited liability corporations (LLC) and partnerships (LLP), and discuss under what circumstances one would choose to use an LLC or LLP to establish his or her own business. Limited Liability Companies Limited liability companies gained recognition because they have similar characteristics of corporations allowing owners limited personal liability for business debts and actions. They also provide characteristics similar to partnerships, meaning flexibility and taxation benefits. LLCs are state regulated and most states do not limit ownership. LLCs cannot possess more than two characteristics of a corporation, which are centralized management, continuity of life, free transferability of interest, and limited liability (Liebert-Hall, nd). Furthermore, the federal government does not classify LLCs for tax purposes. Instead, the company must file taxes as a corporation, partnership, or sole proprietorship. The LLC can choose its classification. To be considered as an LLC corporation or partnership, the organization must have two or more members.In addition, single entities can choose to be taxed separate from the owner. However, banks, insurance companies, and nonprofit organizations usually cannot be an LLC. The next two sections will discuss limited liability corporations and partnerships. Corporations Members in an LLC normally possess only an economic interest in the business. These memberships can transfer to other members of the business or non-members. Membership interests do not allow members to take part in daily activities, voting, or management unless they are accepted as a new member.The acceptance of new members depends on state regulations and articles of organization, which usually requires a unanimous vote. Furthermore, member’s contributions to the LLC determine his or her rights and obligations. Leaving a LLC is usually easy, unless the articles of organization or state put a restriction on withdrawal. Members can receive his or her contributions unless otherwise stated in the articles. Dissolution occurs when the LLC legally ends. This usually occurs with a death, disability, withdrawal, bankruptcy, or expulsion of members (Farlex, Inc. 2011). The LLC may be extended with the consent of members and preparing a new article of organization. As stated previously, the federal government does not recognize an LLC company and for tax purposes its filing status is determined by the Entity Classification Rules. If an LLC does not choose to be taxed as a corporation, it will be taxed as a partnership. A corporation and its shareholders are taxed separately. Under a limited liability corporation, self-employed individuals are subject to taxes.LLCs may also have a hard time obtain financing and its operations restricted. Partnership A LLP operates like a partnership providing limited personal liability to its members. Members are responsible for their own actions in the business but not for the actions of other members. On the other hand, all members are responsible for the obligations of those under their supervision. Members of a LLP share equally in the company, its decisions, operations, issues, profits, and losses. Partnerships allow single taxation, which is more appealing to owners.This is pass-through taxation, which â€Å"means that the income, losses, credits and deductions of an LLC can pass directly to a company’s members for use on their own respective income tax returns† (Bean Bilyeu, p. 1, 1997). LLC versus LLP The choice to establish an LLC or an LLP depends on the type of business and its operations. It also depends on what benefits the owners will receive from each. Factors to consider in the decision are the complexity, liability, number of owners, capital, taxation, and survivorship as well as usiness goals, control, skill, cost, and commitment (Liebert-Hall, nd). After researching both the LLC and LLP, my choice is the limited liability partnership. The most appealing factors are the limited liability and the ability to remain in control of the business. Another appealing factor is tax benefits. LLPs are not taxed double and partnership is easier to dissolve. Conclusion Limited liability company structures are a new type of business entity growing rapidly and becoming more popular throughout the world.They offer many opportunities of the corporation and partnership, each structure providing its own advantages and disadvantages. These organizational structures are more complex to start up, but they are also more flexible. The state in which the LLC originates governs the organizations operations. Limited liability corporations and partnerships are more complex but not as fixed as sole proprietorships, corporations, and general partnerships. References Bean, M. E. Bilyeu, J. D. (1997).