What Are LLC And Partnership?

LLC and Partnerships are two types of business organizations that can be found in different countries. There are countries which have the same nature and characteristics of the two organization types but have different names.

LLC or Limited Liability Company

LLC, a famous abbreviation of a limited liability company is the hybrid of corporation and partnership. In the United States, LLC has its first origin in Wyoming in 1977 but other US states followed suit during the 1990’s. It is chiefly inspired from the limitadas of many Latin American countries and by Germany’s GmbH.

Professional Limited Liability Company is a variation of LLC. It is organized by professionals for the purpose of rendering professional services. Doctors, accountants, engineers, architects, lawyers or chiropractors can form this kind of business organization. Series LLC is another variation of LLC.

LLC is the popular term used in the United States. Other terms are differently used by different countries which have a business organization similar to the structure of LLC.

In the United States, a limited liability company can elect to be a manager managed or member managed. In manager management, there can be a two-tiered management structure with the potential to convert into a corporation. On the other hand, a member management has a partnership structure or flat member. Managing members are responsible for the administration, management and maintenance of the affairs of an LLC. Managers in manager managed LLC serve a particular term. Their duties and responsibilities are outlined in the articles of the organization or the LLC’ s operating agreement.

The owners of LLC are called members. It may have a partnership or corporate structure. It can have one or several owners. In some US states, it is possible for an LLC to be formed by one natural person. It is not required for an LLC to have a board of directors or officers, however, members of LLC may elect to do so.

The advantage of LLC is its limited liability attribute. Owners of LLC who are called members are protected from some liabilities incurred by the entity. However, they may be responsible for any obligations that are beyond the entity’s fiscal capacity.

When it comes to tax treatment, LLC can be taxed according to the discretion of its members. LLC that has one member may elect to be taxed as a proprietor. LLC’s with several members can avoid double taxation by electing to be taxed as partnership. LLC can be treated as an incorporated branch and can be taxed as a corporation when it has a single corporate member.

Most states in the United States treat LLC as an entity separate from its members. LLC is created by law making it somewhat similar to a corporation. However, it is not required to conduct an annual general meeting for its members compared to corporation’s annual stockholder’s meeting. Recordkeeping and paperwork may not be as complex as a corporation.

Partnership

A partnership form of business organization is characterized by having two or more people who, in the spirit of cooperation, contribute properties and/or knowledge to carry out the objectives of an enterprise and share profits and losses from it. This type of business entity is evidenced by the existence of a nominate contract or partnership agreement. A partnership agreement is deemed a declaration of partnership.

Partners are fiduciaries. The money and properties contributed by each partner are entrusted by the partnership.

The act of a partner is binding with other partners. In general partnership, partners have binding interest over the operation of the enterprise as well as the profits and losses. They are also liable for any obligations arising from the business operation wherein the business interests as well as personal assets are at stake. Partnership with limited partners may only be liable up to the extent of their investment.

Partnership can be formed much easier than a corporation and may even be preferable than a sole proprietorship when it comes to capitalization. However, this type of business entity is vulnerable to dissolution. Dissolution of partnership may occur when there is a disagreement among partners or one of the partners is deceased.