LLC vs Partnership

Differences Between LLC and Partnership

LLC can be formed by one individual by filing Articles of Organization while enjoying the status of separate legal entity and taxation benefits whereas Partnership can be formed between two or more individuals by agreeing their rights and responsibilities but they do not enjoy a separate legal entity status however they are liable to pay taxes just like an individual.

You’ve decided to start with an organization. You’re sure that you want to create an LLC or partnership, but you’re not sure what to go with. Before you ever decide to go with one, it’s prudent to look at different aspects like – own liability, cost of forming a partnership/LLC, ownership, taxation, management, etc.

LLC-vs-Partnership
  • If you want to create a partnership, you need to find a partner or two. These partners should also have a similar vision or goal to form a partnership with you. Finding the right partner/s isn’t easy. If you don’t know how to find a suitable partner (or don’t want to), forming an LLC would be the right option.
  • If you talk about registering a partnership firm or an LLC, the procedure is almost similar. To form an LLC or partnership, you need to register with the state where the business wants to run its operations. For forming an LLC, you need to file the “Articles of Organization” with the secretary of the state office. For forming a general partnership, two or more partners should agree to conduct business together and share the rights and profits as per the agreement.
  • If you decide to go with a partnership firm, you need to know that there are several categories of partnership firm. You can create a general partnership (GP) firm where the owners have equal rights and equal personal liability for the business.
  • You can also create a limited partnershipLimited PartnershipIn a limited partnership, two or more individuals form an entity to undertake business activities and share profits. At least one person acts as a general partner against one limited partner who will have limited liability enjoying the benefits of less stringent tax laws.read more (LP) where there are two types of partners – limited and general partners. General partners have equal rights and personal liability, but limited partners don’t have any right in the decision making even though they invest money into the business.
  • There are also two kinds of partnerships other than LP and GP. One is called a limited liability partnership (LLP) where every partner will have limited personal liability. The other is a limited liability limited partnership (LLLP) where both limited and general partners involve themselves and both of these partners have limited liability.
  • You will choose to have a general partnership or a limited partnership if you don’t want to involve the investors in decision-making. Forming an LLC will not allow you to skip the investors from the decision-making process.

One of the most important differences is the concept of a separate legal entity. In a partnership, the partners and the firm don’t have a separate legal entity. If a partner of a partnership dies, withdraws, the partnership ends. But this is not the case for LLC. Since the LLC and the people involving in the LLC have a separate entity, LLC perpetuates until the date of termination.

LLC vs Partnership Infographics

Let’s see the top differences between LLC vs Partnership.

LLC-vs-Partnership

Key Differences

  • An LLC can be formed by an individual, while a partnership required more than one person.
  • An LLC has a separate legal entity than its owners. A partnership firm doesn’t have any separate legal entity from its partners.
  • An LLC is formed by the filing of the “Articles of Organization” with the secretary of the state office. For a partnership firm, partners should agree on the terms of the partnership.
  • You will create an LLC if you don’t mind your investors getting involved in the decision-making process. You will go for a general partnership or limited partnership if you don’t want your investors to involve in the decision-making.

LLC vs Partnership Comparative Table

Basis of Comparison LLC Partnership
Formation by one individual LLC can be formed by one individual. Partnership can’t be formed by a single individual.
Registration procedure To form an LLC, you need to file the “Articles of Organization” with the secretary of a state office. To form a partnership, the partners need to agree on their rights, profits, and share of liability.
Types LLC has only one type. Partnership firms can have four types –

 

  • general partnership (GP)
  • limited partnership (LP)
  • limited liability partnership (LLP)
  • limited liability limited partnership (LLLP).
Separate legal entity LLC and the owners of LLC have a separate legal entity. Partnership firm and the partners don’t have a separate legal entity.
Taxation LLC pays taxes just like a partnership firm. Partnership firm pays taxes just like an individual does.

Final Thoughts

The idea is to choose the one that suits your requirement and purpose. If you’re clear about your vision and what you want to accomplish, the rest would become easy. While deciding which one you should go for LLC or partnership, this handy guide will help you learn the fundamentals.

Recommended Articles

This has been a guide to LLC vs Partnership. Here we discuss the top differences between LLC and Partnership along with infographics and comparative table. You may also have a look at the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *