Partnership LLC       

When considering a partnership LLC, there are several factors at play. An LLC has similar attributes to a partnership. An LLC is an entity where individual member have personal liability protections, but with similar tax structures to corporations and partnerships. For instance, an LLC pays income taxes in the same manner as partnership.

Partnership Formations      

The formation of a partnership and LLC are the same in many respects. Both form via registration in the state where the business will operate.

A partnership is primarily defined as a pool of co-owners, otherwise known as partners, to achieve a particular business endeavor.

You would register a partnership at the state level, but your company will fall under different partnerships, and this would depend on the nature of your business and the professions of additional members. Instead of corporate stock, LLC members divide profits among themselves according to share percentage.

The ownership amount depends on the arrangement between members, but the percentage must always equal to 100 percent. Moreover, partners determine how the business is structured through a partnership agreement.

Operating Agreements are another vital component, and although OAs are not mandatory under state law, it is a vital document that designates the structure of your company. OAs are useful for:

  • Outlining percentage shares
  • Stressing Terms and Conditions
  • Determining Roles and Responsibilities

Operating agreements also determine unknown factors, such as what follows should a member die or retire.

LLC and Partnership Liabilities

The primary difference between partnerships and LLCs is liability protections. Partners are held liable for any actions or debt obligations of the overall partnership. On the other hand, LLCs safeguard individual members from liabilities or actions. Further, the LLC would face legal ramifications instead of individual members.

Owners are solely responsible for their contributions to the business and are not collectively responsible for the company as a whole. However, there are exceptions:

  • No sharp divided between individual and the business
  • If members guarantee business loans
  • If any member acts illegally in the form or fraud or other illicit activity
  • Mismanagement

Further, members can be held liable for any agree to cover additional debts. For instance, a member who guarantees a mortgage will be responsible for that date if the LLC cannot honor the debt.

Partnership and LLC Taxes

LLCs and partnerships go through the “pass-through” system of taxation. Members are taxed at the individual level as opposed to being taxed as a company. Further, remembers are able to record losses and profits on returns and are able to make deductions from their income. Partners file tax returns via Form 1065 from the IRS, and a Schedule K-1 is to show partner shares, including losses and profits annually.

Moreover, K-1s are recorded with an individual tax return. LLCs are not taxed, but LLCs with more than one partner is taxed as a partnership. LLC sole owners are taxed as a sole proprietor and would record earnings on Schedule C of individual returns. In addition, LLCs can choose to be taxed as a “C” or “S” corporation.

Registration and Record Keeping for partnerships and LLCs      

LLCs and partnerships are not subject to the same record-keeping requirements as corporations. For instance, there are no recording mandates if a partnership is based in the state where business takes place. Partners have leeway in management structure and may organize how they please. In contrast, LLCs must maintain a strict divide between business and personal matters to maintain limited liability status. For this reason, some record-keeping is necessary.

Check with an attorney regarding the keeping of records and any reports you may need to file to maintain your entity, such as annual reports.

If a partnership is not registered with a state, there are no specific requirements for keeping records or

Ownership    

LLCs may comprise of various businesses in the form of a partnership, corporation or a separate LLC.LLCs may also have foreign individuals and businesses participating as owners of the company. A partnership business cannot have other businesses acting as partners of the business.

Structure       

A partner is responsible for managing the daily operations of the LLC. Any duties and obligations are outlined in partnership agreements. LLC members have the choice of managing affairs themselves or hiring managers to delegate tasks. LLCs provide a flexible structure allowing the business to operate as a corporation.

Lifespan         

A business partnership ends if a partner dies or decides to sell his or her stake in the business. LLCs have a longer lifespan, but only as spelled out in the Articles of Organization. Additionally, buy-sell agreements give partners time to purchase any shares of a partner who wishes to leave the business. Regardless, partnerships come with shorter lifespans.

Common Types of LLP         

LLPs are the most common among the business community. Such an arrangement is found in law and medical communities. For instance, a medical practice can use LLP to found a group that is in charge of the form. Further, other partners can remain silent, otherwise called earned partnership status. Junior partners usually have no input in management operations and protects juniors from any management direction.

Managing partners usually absorb larger shares of the business than a silent or junior partner.

LLCs are a popular choice among smaller businesses. Also, some states may mandate that multiple owners create an LLC. LLCs primarily divide business and personal dealings when compared to partnerships. With that,

LLCs and Lawyers     

You do not need a lawyer to file an Articles of Organization or create an LLC, and all states allow individuals or members to create an LLC. The Articles of Organization is the primary document you need to file for the LLC to exist. You need to do the following to form an LLC:

  • Name the Company
  • Provide a Principal Location
  • Any Addresses and Names of Owners
  • Appoint a Registered Agent

Most states provide forms that are easy to fill out, making the LLC process an easier venture. Further, a state’s LLC office is open to email communication for owners that have questions about the process. With that, consult an attorney if you need to decide the right LLC structure. In addition, having an expert review your operating agreement can enhance internal operations and prevent potential legal disputes among members. Further, an attorney can be helpful for book-keeping measures.

LLC and an Operating Agreement?

Most states do not require an operating agreement, but it is a necessary part of your business. An operating agreement provides the following benefits:

  • Establishes rules and governance structure
  • Outlines Profit Distribution Methods
  • Clarifies the Goals and Functions of the Business
  • Allows You to Tailor Your LLC to Desired Specifications

Converting a Business to an LLC    

You can convert a partnership or sole proprietorship into an LLC. Many wish to do so because LLCs maximize personal protections. To change your business entity, pick up a form from your state government called a “certificate of conversion.” If your state does not provide a conversion form, file a standard articles of organization to establish a separate LLC.

If you can transfer, you need to import the following:

  • State Employer Identification Numbers
  • Federal Employer Identification Numbers
  • Sales Tax Permit
  • Business Licenses
  • Additional Permits

Note: Some states may require you to publish the conversion of your LLC in your local newspaper to make the process official.

If you need help with a partnership LLC of any kind,  post your legal need on the UpCounsel marketplace. UpCounsel has a team of experienced lawyers ready to help you through the partnership process and place you on the right track to success. Our lawyers will also help you establish and LLC and tailor your business in a way that works for you.