Limited Liability Corporation and Partnership Paper

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A limited liability company, normally called an LLC, is a business arrangement that merge the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation (Limited Liability Company (LLC) FAQ, 2012). The federal government does not distinguish an LLC as a classification for federal tax purposes. LLC’s are well-liked because, comparable to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLC’s are more like a partnership, providing management suppleness and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may be individuals, corporations, other LLC’s and foreign entities. There is no maximum number of members. The majority states also permit single member LLC’s, those having only one owner (Limited Liability Company (LLC), 2012).

A LLC offers defense from personal liability for business debts, just like a corporation. Yet, unlike a corporation, which must pay its own taxes, an LLC is a pass-through tax unit. The profits and losses of the business pass through to its owners, who report them on their personal tax returns just as they would if they owned a partnership or sole proprietorship. Furthermore, while setting up an LLC is more complicated than generating a partnership or sole proprietorship, running one is considerably easier than running a corporation (Limited Liability Company (LLC) FAQ, 2012).

While LLC owners take pleasure in limited personal liability for a lot of their business transactions, this protection is not unconditional. This disadvantage is not unique to LLC’s; however as the same exceptions apply to corporations. An LLC owner can be held individually liable if they:

“personally and directly injures someone personally guarantees a bank loan or a business debt on which the LLC defaults fails to deposit taxes withheld from employees’ wages intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else, or treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity” (LLC Basics, 2012).

If owners don’t treat the LLC as a detached business, a court might come to a decision that the LLC doesn’t actually exist and find that its owners are in actuality doing business as individuals who are personally liable for their acts (LLC Basics, 2012).

In a Business Partnership, two or more people share ownership of a single business. Like sole proprietorships, the laws do not differentiate between the business and its owners. The partners should have a legal accord that sets forth how decisions will be made, profits will be shared, disagreements will be determined, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to disband the partnership when needed. It’s hard to think about a break-up when the business is just getting started, but a lot of partnerships split up at crisis times and unless there is a distinct process, there will be troubles. “They also must decide up front how much time and capital each will contribute” (Sole Proprietorship vs. Partnership vs. Limited Liability Company (LLC) vs. Corporation vs. S Corporation, n.d.).

A partnership begins by design when two people agree to manage a for-profit business with one another. There are no papers that need to be filed with the state in order to operate as a partnership. “However, LLC’s are required to file articles of organization, also known as a certificate of formation, with the secretary or department of state where the LLC operates. An LLC’s articles of organization contain general information about the business, such as the legal business name, principal address and the management structure of the company. The fee required to file articles of organization with the secretary or department of state may vary from state to state” (Carter, 2012).

The partners of a partnership are accountable for running the every day dealings of the business. Partners are answerable for the dealings of the other partners. In other words, if a partner commits a careless act, the other partners of the business are similarly answerable. Partners in a partnership business take identical liability when it comes to managing the company. On the other hand, an LLC may be administered by members of the company, or non-member managers may be hired to supervise the company’s day-to-day activities. LLC’s that are run by its members function more closely like a partnership because the owners of the business add in managing the company’s every day affairs. An LLC that is run by non-members functions more like a corporation because the owners of the business do not add in managing the company (Carter, 2012).

Partners of a partnership have limitless liability against business lawsuits, debts and other business responsibilities. Each partner is evenly responsible for the company’s debts and obligations. The personal assets of partners may be apprehended to satisfy business lawsuits and debts, if the partnership’s business assets are not adequate to cover the company’s existing commitments. This is not the instance in an LLC since members are not personally accountable for business debts and obligations. Each member of the LLC is legally responsible for business lawsuits and other requirements only to the degree of their ownership interest in the company (Carter, 2012).

If I were establishing my own business and the running of the business was going to consume a lot of my time and energy I would set the business up as a LLC so that I could get all of the hassle of setting it up out of the way and then be able to concentrate on just running my business. If on the other hand the running of the business was not going to consume all of my time and I will have time to devote to a partnership along the way, I would set it up that way.


Carter, C. (2012). Limited Liability Corporations vs. Partnerships. Retrieved from http://smallbusiness.chron..-partnerships-4430.html

LLC Basics. (2012). Retrieved from http://www.nolo..html

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Limited Liability Company (LLC) FAQ. (2012). http://www.nolo..html

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