In terms of business structure, a limited liability company is not a partnership; however, there can be some shared similarities at tax time.
- Consider many factors when selecting the appropriate business structure. The type of business and number of employees are important considerations, as are legal restrictions, tax advantages and the amount of assumed liability. Business structure types include sole proprietorships, corporations and S corporations as well as limited liability companies and partnerships
- The limited liability company (LLC) is a relatively new business structure. It provides the liability protection of a corporation--protecting its members' personal assets from business setbacks (thus the name "limited liability"). And an LLC offers the tax efficiency and business flexibility of a partnership. Like a corporation, an LLC is a legal entity.
- A partnership is defined as two or more individuals who join to conduct business. Each partner contributes money, skill and expertise as needed. Unlike an LLC, the law does not differentiate between the company and its owners. Profits from the company are shared among partners.
- A partnership is easier to establish than an LLC; however, it does not provide the liability protection that an LLC does. Partners may be jointly or individually held responsible for the actions of the company or other partners. While an LLC provides liability protection to its members, it can be more complicated and expensive to establish. Tax filing can also be more complicated than in a partnership.
- A partnership does not pay taxes. The profits and losses are split among partners who then claim them on their respective income tax forms as personal income. This is known as "pass through" taxation. For tax purposes, an LLC may be classified as a partnership, corporation or single entity. Appropriate tax forms will reflect the classification of the LLC.
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