Llc Or Llp Paper

816 words - 3 pages

IntroductionEvery day, more businesses are opening up and with each business that opens, liability is a concern. This paper will discuss what a limited liability partnership is as well as a limited liability corporation. An explanation will be provided as to when a limited liability or limited liability corporation should be used.Limited Liability PartnershipFor a limited liability partnership, partners have a limited amount of liability. A limited liability partnership is more commonly used in professions of the legal or accounting practices. In a limited liability partnership, each partner is not liable for what the other partner does. For example, if one partner has substantial debts and obligations, the other partner will not be liable for this partner's debts and obligations. This also means that if for some reason, the partnership files bankruptcy, the partner's personal assets like his or her personal bank account or personal property will not be lost in the bankruptcy. Each partner is responsible for his or her actions and every state has its own laws on limited liability partnerships (Gitman, 2006 pg. 6).Limited Liability CorporationA limited liability corporation is a business that has partnership and corporation qualities. With a limited liability corporation, shareholders are protected according to his or her vested capital in the company. The limited liability corporation can have more than two members unlike a partnership. Members of a limited liability corporation will not be responsible for the company's debts unless he or she has signed a personal guarantee for that debt (Gitman, 2006 pg. 6).Limited Liability Partnership versus Limited Liability CorporationTo decide whether the company will be formed under an LLP or a LLC is dependent on what type of business the company wants to open. If one was to form a business like a law or accounting firm, then an LLP would be suitable because each member would be responsible for his or her own actions of malpractice and in most states, malpractice insurance is a requirement for LLP's. One disadvantage of an LLP is when a partner dies or files bankruptcy, the company has to be dissolved unlike in a corporation, business can take place as usual even if a partner dies or files for bankruptcy (About.com, 2009). In a LLP the partners share the profits, losses and debts and each partner is taxed according to his or her profits from the...

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