There are many factors to consider when choosing the right business structure for your company. Partnerships and limited liability companies (LLCs) are two of the most common business structures.
So, how do you know which one is right for your business? Understanding the critical differences between these two types of business structures is important to determine which is suitable for your company.
Advantages and disadvantages of both
Partnerships involve shared business ownership and decision-making rights among two or more people, allowing for an efficient way to draw on the strengths of everyone involved. Additionally, because of their small size and flexibility, partnerships generally have much lower start-up requirements in terms of cash and paperwork than a corporation. In addition to these factors, the additional benefit of not paying corporate taxes can make partnering seem like an attractive option.
However, in a partnership, the owners are often personally liable for matters relating to the business. This means they can be held responsible in court for any business debts, contract obligations or other liability.
Forming a Limited Liability Company (LLC) is something to consider for business owners. LLCs are separate entities from their owners, meaning the owners are generally not liable for the debts and obligations of the company. At the same time, forming an LLC can be a complex legal process with multiple considerations that must be taken.
While LLCs have significant benefits, such as potential tax savings, there may also be drawbacks, such as the cost of set-up and ongoing compliance associated with maintaining a separate entity.
Both business structures have benefits and drawbacks, so you and your partner must carefully weigh your options. With either choice, it’s imperative to have the proper legal documentation to ensure compliance with regulations and protect your interests.