LLC and LP are growing swiftly in popularity among small business owners as these structures are not only beneficial from both tax and asset protection but also easy in set up and operation. In case you are a start up company and are looking for the best company organization, RegularPay can give you advice on the best structure taking into consideration your business features and requirements.
Having registered your company in Europe, you will receive numerous benefits including opening a merchant account in reputable European bank and have a chance to accept payment advantageously on your website. In the following article we will give you general information about LLC and LP incorporation, their advantages and disadvantages.
General knowledge about LLC and LP
A limited liability company (LLC) is a hybrid entity that have both elements of partnership and corporate structures. The main characteristic LLC shares with a corporation is limited liability and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it can be beneficial for companies with the only owner.
A limited partnership (LP) is created when two or more partners unite to conduct a business jointly and in which one or more of the partners is responsible only to the extent of the amount of money that he has invested.
Andvantages and disadvantages of LLC incorporation
The members of LLC have protection against liability and can not be liable for any company losses or debts and business credit, and their personal assets can not be taken by the debtors. Also limited liability company offers protection for the owner against a possible lawsuit.
LLC has the right to choose any form of profit distribution that is not dependent on how much capital members contribute.
Unlike standard corporations, LLC doesn’ t have a legal requirement to keep minutes or have a board of directors, annual meetings or strict book requirements. This can reduce complications and administrative paperwork, save much time and give you possibility to run your business on your own terms.
Flexible taxation is another benefit given to LLC members. While registering LLC the owner can choose whether he wants to be taxed as partnership or corporation. However, if the LLC has just one owner, it will be taxed as a sole proprietorship.
While LLC offers numerous benefits, certain aspects of it can prove to be a bit disadvantageous.
Usually, when a member leaves LLC, the business is dissolved. The remaining members have to decide whether they want to start a new LLC or part ways. However, there is an option to include provisions in operating agreement to prolong the life of the LLC in case a member decides to leave the business.
Also, all members of LLC are considered self-employed and must pay the self-employment tax contributions. The entire net income of the LLC is subject to this tax.
Because of the protections afforded to LLC, some types of businesses (like banks, insurance companies or medical service companies) are ineligible to be registered as LLC. These rules can vary, so discover from a business formation lawyer whether an LLC is a possibility for your company.
It is not possible for LLC to go public as there are no shares or shareholdings.
The incorporation of LLC can give you a great combination of flexibility and protection that will help you save money in filing fees and taxes. Of course, LLC might not be right for your business, that is why you should analyse carefully all the conditions and consider its advantages and disadvantages to make the right choice for your business.
Andvantages and disadvantages of LP incorporation
The profits and losses in a limited partnership flow through the business to the partners, all of whom are taxed on their personal income tax returns.
A limited partner’s liability for the partnership’s debt is limited to the amount of money or property that individual partner contributed to the partnership.
A limited partnership will not be dissolved in case partners are replaced or decide to leave.
Creating a limited partnership like a LLC requires less paperwork than setting up a corporation.
As usual, there are some disadvantages of forming a LP. In a limited partnership, the general partners must carry the burden of all the business’s debts and obligations. If the company is sued or go bankrupt, the general partners are responsible for all the debts and losses.
A general partnership does require less paperwork than a corporation, but as there are limited partners, annual meetings should be hold and a detailed partnership agreement signed.
The incorporation of LLC or LP can give you a great combination of flexibility and protection that will help you save money in filing fees and taxes. Contact us and we would analyse carefully all the conditions and advise the best solution for your business.