QUESTION: I’m deciding between a partnership and an LLC. Which is the better option?
ANSWER: That really boils down to what you’re looking for as a business owner. Partnerships are like sole proprietorships in that they’re easy to create and simple to run but the protection is low overall because legally the business owner is tied to the business. If your business ever goes into debt, your personal assets could be at risk. The owners of a partnership also report profit/loss on their personal tax returns.
Forming an LLC ensures that personal assets are protected and not at risk of lawsuits. It also has the added benefit of being treated as a pass-through entity when it comes to taxes, ensuring a single taxation. You may even find yourself opting for the option of Limited Liability Partnership, which, like the LLC, provides protection for personal assets as well as the pass-through tax structure and some added liability protection to each partner so that they are not individually liable from any consequences stemming from another partner’s actions.
Consult my related article on How to Form an LLC or speak with your attorney or other adviser if you have questions.
Got a question for Deborah? Ask it in the comment section.
Are you looking to open a small business? Here are a few more helpful articles from Deborah Sweeney to get you started:
10 Things to Know When Starting a Business in 2014
Should I Form a Manager-Managed LLC?
What is an EIN and Why Do I Need One?
Do I Need a Business License?
How to Form an LLC
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