In order to set up a partnership LLC, you must first decide on a business name, then choose a state in which to register your business. You will need to file articles of organization with the secretary of state's office and pay the filing fee. The next step is to create an operating partnership agreement that will outline the partnership's operations and management.
Your company must be registered with the Internal Revenue Service (IRS). You can do so by submitting business tax forms like the IRS Form SS-44 and obtaining a Federal Employer Identification Number (EIN).
What is an LLP?
An LLP, or limited liability partnership, is a legal entity that provides business owners with the protections of a corporation while still offering the pass-through taxation benefits of a general partnership. This type of entity can be advantageous for businesses looking to limit their personal financial liability if something goes wrong with the company.
How Does an LLC Partnership Work?
An LLC is a business structure that offers its members' limited liability for the company's debts and obligations.
This makes LLCs popular with business owners who want to protect their personal assets from potential lawsuits or creditors.
An Operating Agreement (sometimes referred to as Articles of Organization) is a document that outlines how the partnership/partnerships will be managed and operated.
Partnership interests can be held by individuals, corporations, or other LLCs.
Partnerships can be structured with or without a written partnership agreement, which is similar to an LLC Operating Agreement discussed above, and also discusses how the business will operate as well as outlining specific details about the members of the company who are partners.
Tell Me the Difference Between a Limited Liability Company and a Partnership?
In a nutshell, an LLC is a separate legal entity owned by one or more people. In comparison, a partnership is an ownership structure where two or more people share responsibility for the company.
In addition, the members of a limited liability company (LLC) are protected from personal liability for business debts and obligations incurred by the company. A limited partnership offers limited liability for the company's debts and obligations. General partners in a limited partnership are not protected from personal liability.
Which is a Better Partnership vs. LLC?
The best option for your business depends on what you are trying to accomplish. If the goal is to offer protection from liability and have a pass-through taxation structure, then an LLC would be a better business entity.
As partners in a partnership, all company members are personally liable for any debts or obligations incurred by the company.
The exception to this is in the case of an operating agreement, which can outline how liability should be shared among partners.
Related Article: LLC vs Limited Partnership
Taxes on Partnerships and LLCs
Partnerships and LLCs are both pass-through entities for tax purposes. This means that the income and losses of the business pass through to the individual partners or members, who then report them on their own personal tax returns.
There is no separate entity-level tax return for a partnership or LLC. In other words, the partnership or Limited Liability Company itself does not pay taxes. Instead, the profits and losses are reported on tax returns of individual partners or members.
Is Having a Business Partner a Good Idea?
Yes, business partnerships can be a good idea if done properly. It gives you the financial support that allows your small business to grow and thrive and provides different opinions from several viewpoints on how best to develop it into something profitable.
How Do Partners Get Paid?
This will depend on the partnership agreement. Typically, partners are paid based on their ownership percentage in the company, how much work they do for the company, or a combination of both. It is important to have an agreement in place that outlines how profits and losses are distributed among partners and what happens should one partner want to leave the business.
Who Is Responsible if a General Partnership Fails?
Partnership liabilities and debts are the responsibility of all the partners. This includes both general and limited partners. If a partner dies or becomes disabled, their share in the partnership is transferred to their estate or heirs. In the event that a partner withdraws from the business, they are still liable for any obligations incurred by the company prior to their departure.