Question

Why would an individual choose an LLC instead of LLP for their business?. Describe the duties that Members owe to an LLC. Is this duty different based on the type of LLC?

Answer 1

Limited liability partnership (LLP) and limited liability company (LLC) are two business model which are available to a person who wants to start a new business both LLP and LLC has its unique characteristics. in LLC what happens is partners comes together to make their business work as a flexible entity in terms of managing the entity and tax structure. In LLC either partner manages the entity or external management team is hired to manage the affairs of the entity also tax can be paid as a single entity or corporation like. If any fraud happens the partners enjoy immunity from personal liability. The LLC can be formed easily by a single act by filing articles of the organization. in the case of  LLP, there is not much flexibility it is formed by two or mare partners coming together and require a written partnership agreement, management is borne by partners and can also employ others known as junior partners with no ownership rights. The tax has to be paid as partners and drawn to partner's incomes also if any fraud or deception occurs each one is individually responsible for their acts no two patterns will be held responsible for the act done by other also each partner is individually responsible for its debt obligation.

So there is a difference in the management structure, tax structure, and also liability of partners for acts making LLC mire advantageous over LLP making it popular among people forming a business.

In terms of duty members of LLC have some fiduciary duties

Duty of loyalty - in this person hs to put his personal gain apart and work for the success of the LLC one should not take any due advantage of any information gained while working on LLC

Duty of care - this states that members should remain honest in taking out duties of LLC guiding the LLC in the right manner reasonably carrying out obligations.

Duties in manager-managed and member-managed LLC - Sometimes LLC hire mangers to manage LLC in this case duties are clearly defined in statute and the fiduciary duty is clearly complied by managers. In member-managed LLC fiduciary duties are followed by the partners of LLC, the duty of loyalty, and reasonable care.

Clearly the duty of the LLC member remains same inrespective of the type which is guided on the principles of loyalty , care, honesty.