Limited Liability Corporation and Partnership
In the United States, limited liability companies increased rapidly throughout the past 10 years. These structures permit businesses to decrease federal tax liabilities by federal pass-through provisions (Bean & Bilyeu, 1997). Limited liability can apply to any non-corporate business, in any state, and provides characteristics of a corporation and a partnership. Individual states regulate the operations of the LLCs. However, companies with limited liability are different and distinct from a sole proprietorship, partnership, and corporation. The purpose of the subject is to explain the roles of limited liability corporations (LLC) and partnerships (LLP), and discuss under what circumstances one would choose to use an LLC or LLP to establish his or her own business. Limited Liability Companies
Limited liability companies gained recognition because they have similar characteristics of corporations allowing owners limited personal liability for business debts and actions. They also provide characteristics similar to partnerships, meaning flexibility and taxation benefits. LLCs are state regulated and most states do not limit ownership. LLCs cannot possess more than two characteristics of a corporation, which are centralized management, continuity of life, free transferability of interest, and limited liability (Liebert-Hall, nd). Furthermore, the federal government does not classify LLCs for tax purposes. Instead, the company must file taxes as a corporation, partnership, or sole proprietorship. The LLC can choose its classification. To be considered as an LLC corporation or partnership, the organization must have two or more members. In addition, single entities can choose to be taxed separate from the owner. However, banks, insurance companies, and nonprofit organizations usually cannot be an LLC. The next two sections will discuss limited liability corporations and partnerships.
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