General Partnership Vs. LLC
A partnership is a for-profit business formed by two or more individuals. A limited liability company (LLC) provides its owners with the limited liability protection received in a corporation, as well as the flexibility of a general partnership. The LLC business structure became a popular choice among business owners during the 1990s.
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Ownership
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A partnership must involve at least two or more people. An LLC may be established with a single-person or an unlimited number of members. According to the Internal Revenue Service website, another LLC, partnership, corporation, individual or foreign entity may act as a member of an LLC. In a partnership business, all partners must be individuals.
Formation
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According to the Findlaw website, when two or more individuals agree to go in business as a partnership, there isn't a need to file formal paperwork. An LLC, on the other hand, must file articles of organization, also known as a certificate of formation, with a state secretary of state's office, as a condition of formation. Furthermore, an LLC must pay applicable filing fees charged by the state of formation. The fees to file articles of organization will vary from state to state.
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Liability
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Perhaps the most important difference between a partnership and an LLC concerns the issue of liability. The partners of a partnership business will have unlimited liability for all obligations, debts and losses incurred by the business, as mentioned on the Findlaw website. The personal assets of a partner may be seized as compensation for business liabilities and obligations. Members of an LLC have limited liability for business liabilities and debts that arise while operating the company. The personal assets of an LLC member may not be used as compensation for business debts and liabilities. In many instances, an LLC has personal asset protection comparable to that of a corporation.
Life
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As explained on the Residual Rewards website, the life of a partnership may be limited. If a partner dies or withdraws her ownership interest, the partnership may dissolve. An LLC may have a definitive dissolution date or perpetual existence. In some cases, an LLC may dissolve upon the death or withdrawal of an LLC member. In other cases, an LLC may exist well beyond the life or withdrawal of its initial members.
Taxation
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Partners of a partnership business are allowed to pass their share of business profits or losses to their individual or joint tax returns. In that respect, a partnership is classified as a "pass-through" entity. An LLC may elect taxation as a sole proprietorship, partnership or corporation. An LLC that elects taxation as a sole proprietorship or partnership will be viewed as a "pass-through" entity. Most LLCs don't elect taxation as a corporation due to the risk of double taxation. An LLC that elects taxation as a corporation will pay tax on company profits at the business level. In addition, LLC members are taxed individually on any profits issued by the LLC.
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References
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