The Differences Between Partnerships and Limited Liability Companies (LLC)

Chris Gilmour
May 26, 2009 — 2,106 views  
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To assist with the creation of a business, some entrepreneurs might choose to create a partnership or a limited liability company rather than a corporation. The partnership can also be referred to as a firm, and implies as association of several individuals (more than one) who are working mutually in a business or as part of a professional practice. Because corporations are known to have complex and intricate rules about how they are organised, a partnership as well as a limited liability company can provide flexible divisions of management authority, as well as profit sharing and ownership rights between the registered owners.

It is generally understood that Partnerships can fall into two categories. General partners will be subject to the liability being unlimited. Therefore, a business which is unable to honour its debts, the creditors are able to demand payment from the personal assets of the general partners. The general partners equally have an authority and equal responsibility to administer the business. They are comparable to the President or other important managerial officers of a corporation.

The Limited partners category is different as the partners have a liability which is limited. As individuals they're not responsible for the liabilities contained in the business. Essentially they are junior partners who have certain ownership rights to the returns (profits) of the business, but in general they do not take part in high-level management regarding the business. Legally, a partnership has to have at least one or more general partners.

It is becoming more widespread nowadays to have a limited liability company (LLC) among smaller businesses. Like a corporation, an LLC works with limited liability but also has the flexibility regarding dividing returns with the owners. One of the main advantages is the flexibility as how the profit and management influences are determined. On a negative note, the owners have to enter into a complex set of agreements regarding the disbursement of profit and returns, and how the management tasks are divided. It most cases it needs a lawyer to draft the respective agreements due to the complicity of the legislation.

The legal agreements for a Limited Liability Company or Partnership will specific in great details how profits and returns will be administered between the owners of the business. Corporation stockholders received dividends (share of the profit) dependent upon the amount of shares each stockholder owns, but in most cases the partnership or LLC will not be required to share its profits and returns according to how much each owner invested. The capital invested in the beginning sometimes tends to be one of the factors used when allocating and distributing profits and this can referred and agreed to in the agreements.

About the Author

Chris has several home business websites that promote valid working from home opportunities. He writes articles about finance, the ways to spot a home work scam, treating head louse and nits by using a home remedy for head lice and Italian lifestyle and culture including the various ways to learn italian.

Chris Gilmour