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An explanation of LLC and LLP business structures

On Behalf of | Dec 7, 2023 | Commercial Litigation, Commercial Transactions

As you plan the formation of your new business, you have probably begun researching different business types. Sometimes company structures are very different while others bear strong similarities. This can be the case with limited liability companies and limited liability partnerships.

While LLCs and LLPs share many qualities, they are not identical. A look at these two structures should help you decide if one is the better option for a new Florida enterprise.

How LLCs work

An LLC combines the flexibility of a partnership and the liability protection of a corporation. The owners of an LLC, also known as members, enjoy limited liability, shielding personal assets from business debts. Simultaneously, an LLC does not face the stringent formalities of a corporation, providing a simpler operational framework.

Unlike corporations, LLCs avoid double taxation. Instead, profits and losses “pass through” to members, who report them on their individual tax returns. This form of taxation eliminates the need for a separate tax return for the LLC itself, streamlining the tax process for its members.

How LLPs work

LLPs are a dynamic form of business partnership. In an LLP, each partner enjoys limited liability, safeguarding personal assets from business obligations, including those arising from the actions of other partners. This arrangement offers more protection compared to a general partnership.

LLPs share a taxation structure similar to that of LLCs. They are not subject to corporate taxation, and income flows directly to the individual partners. This taxation model aligns with the simplicity of LLCs, avoiding the double taxation hurdle often faced by corporations.

Factors influencing a business choice

According to a 2018 survey by the National Small Business Association, LLCs made up 35% of small businesses, making it the top choice above other business types including sole proprietorships and partnerships. Still, deciding between an LLC and an LLP should depend on the preferences of yourself and your partners, not popularity of business type alone.

If flexibility and simplicity are top priorities, an LLC may be the optimal choice. Conversely, if you seek enhanced liability protection, an LLP may better suit your needs. Whether opting for the simplicity of an LLC or the added protection of an LLP, your chosen structure can lay the foundation for a thriving enterprise.