Starting a new business is an exciting time. Up until now, you and your partner may have been treating it as a side hustle, but now it is time to make it more official.
Your new enterprise may stay a side hustle, or it may become your full-time occupation. As your business grows, establishing it as a Limited Liability Companies (LLC) or Limited Liability Partnerships (LLP) can have advantages.
As you and your partner pave the way for the future of your business, this is what you will want to keep in mind about Limited Liability Companies (LLC) and Limited Liability Partnerships (LLP).
What’s the difference?
LLP and LLC sound very similar. While there are some similarities between the two, these are the important areas where there are differences:
Management. An LLC can have just one member (or as many as the owners decide is appropriate) and can either be managed by the members or by outside management with no ownership interest in the company. An LLP, on the other hand, must have at least two partners, but also has no limit for a maximum number of partners. Typically, LLP partners allow each partner voting privileges based on their contribution to the company.
Taxation. For an LLP, the taxes and losses must be reported on the partner’s personal tax returns. An LLC can choose to be taxed the same way as a partnership, or as a corporation.
Liability. As suggested by the name, both an LLC and an LLP will limit the liability on the members or partners. In many regards, an LLC provides a shield for members to protect them from the debts and liabilities of the business. Partners in an LLP, however, have protection from other partners, but not from debts and liabilities of the LLP itself.
The choice that is best for your business will depend a lot on what you do, what kind of liabilities you are exposed to and what your debt and tax situation is like. You should get advice from a skilled attorney to determine the best option for you and your business.