A limited partnership, or LLC, is a type of business ownership with benefits such as limited liability and flow-through taxes, but also requires more paperwork and member participation. It is easy to form in the US by filing articles of organization with the state.
A limited partnership, also known as a limited liability company (LLC), is a type of business ownership that determines many aspects of the way the business is run. It shares some aspects with a private company, some with a partnership, and some with a corporation. There are advantages and disadvantages to establishing a company with this type of structure.
In the United States, it is quite easy to form a limited company. First, the owner or owners of the company, who will be called “members,” must file the articles of organization with their state’s secretary of state. Each state has specific laws on how these articles must be written.
Company members must pay required fees to the state. Each state also has guidelines on other things that may be required, such as filing an operating agreement or making public notice of company formation. Once a limited company is formed, members get all the benefits of the structure, as well as all the drawbacks.
One of the main benefits of a limited company is that, as the name implies, the liability of the members is limited. Members of the company are not liable for its debts, as it is treated as a separate individual in its own right. All debts are the responsibility of the company and cannot be transferred to its members. In this way, the company operates in the same way as a corporation, but with fewer restrictions and member requirements.
Corporations, for example, have the disadvantage of double taxation. The corporation pays taxes on its profits and the members pay taxes on their income. In a limited company, the company is not taxed on its profits. Each member pays the tax on their own earnings. This is known as flow through taxes.
While a limited company has distinct benefits for its members, it also has disadvantages over other types of businesses. It has a lot more paperwork and different rules to follow than a partnership or sole proprietorship. In addition, members must participate in the running of the company, or they are considered investors. If the members are investors, their participation in the company is considered a guarantee. Securities and Exchange Commission (SEC) rules, which require more paperwork and regulations, will apply unless the company qualifies for an exemption.
With many pros and cons to forming a limited company, business owners and investors have a lot to consider. This ownership structure is not the perfect type of business for all companies, but many find it secure and advantageous.
Smart Asset.
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