Fin 419 - Limited Liability Corporations and Limited Liability Partnerships Paper

Limited Liability Corporations and Limited Liability Partnerships Paper

University of Phoenix

FIN/419

March 29, 2011

In the initial process of starting a business, one must decide what type of entity should be created. Financing and security of the company must be recognized with the fundamental issue being what sort of existence should be chosen in order for the company to progress. Many issues have to be measured when decision has to be made. A large amount of organizations are comprised of sole proprietorship, partnership, and a corporation. This paper will discuss a Limited Liability Corporation or LLC and Limited Partnership or LP and the roles each entity has. A Limited Liability Corporation, or LLC, is a business creation that can limit liability to the proprietors or to one owner. This essay will also elaborate on which entity the writer prefers to have for her own business.

Limited Liability Corporation or LLC is a well-liked business makeup in which owners have partial personal liability for his or her proceedings and proceedings of the LLC. The other aspect of an LLC is it is similar to a partnership, given that management has suppleness and the advantage of pass-through taxation.

In the limited partnership, a general partner is considered to be one of the owners making the "business decisions and is "personally" liable for all debts incurred by the business" (Pakroo, 2010). In the same arrangement "there is at least one "limited" partner that puts money into the company but has little control over the day-to-day operations and decisions" (Pakroo, 2010). The tradeoff for this type of structure is that no one person has personal liability for the debts incurred from the business. In the limited liability partnership has "no general partners and all the owners in the LLP have limited liability of any debts incurred through the business" (Pakroo, 2010). So limited partners gain the advantage of receiving "protection from personal liability but can lose his or her investment" in the company (Pakroo, 2010). In this type of partnership every partner individually reports and pays his or her own taxes but he or she does not have to pay employment taxes for his or herself because he or she is not active in the business day-to-day operations. So his or her income is not though of as earned income.

Limited partners need to understand he or she can turn out to be individually legally responsible if he or she does not adhere to his or her flaccid position. When a limited partner begins a dynamic function in the company, his or her accountability can turn out to be limitless.