Question

Answer the following question in no less than one page.

How do you choose between an LLC and an LLP in creating your business organization?

Answer 1

The LLC and LLP,

The liability protection is better in a LLC rather than the LLP. In a LLP, the partners are provided protection over the liabilities , whereas in the case of partnership, all the partners are personally liable to pay all the debts arising in the partnership firm.

In a LLP model, the partnership firm does not pay any taxes, the taxes to be paid are passed through to the partners who file their individual tax returns.

The case of liabiloty protection : the LLC provides shielding of personal assets with business assets. In the case of LLP, there is less protection of personal assets, the individual will have to pay debts from their personal assets if necessary.

In the case of LLC, the owners need not have to actively participate in the business. The activities of an organisation can be carried out through a management team.

There is a lot of paper work involved in the creation of an LLC , but not an LLP. There is ease of formation in the case of an LLP.

So, if i wish to start an organisation with few members and with an ease of formation and not having to pay double taxes carrying out functions on a small scale with few regulation and restrictions with tax advantages . We should  prefer a partnership over a corporation.  LLP is eligible for a lower rate of corporation tax. LLP , puts the assets of the owners at risk,as the debts of the partnership firms can be paid by using the personal assets of the partners.