What Are the Differences Between LLP Company and Partnership
What Are the Differences Between LLP Company and Partnership
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In this article, we look at what are the differences between an LLP company and partnership. We also discuss the advantages and disadvantages of forming either a limited liability company or a limited partnership. We highlight that the structure chosen will have long-term repercussions and that it is crucial to weigh up the pros and cons with your legal and tax advisors.
An difference between a partnership and an LLP is a separate legal entity with a distinct personality, and its members can enter into contracts, own property and sue or be sued in their own name. Typically, the members' personal assets are protected against business debts and liabilities. However, the LLP may lose its protection if an owner injures someone, does something fraudulent or personally guarantees a bank loan.
Unlike a corporation, an LLP does not pay corporate taxes. Instead, the profits pass through to its owners who include them in their personal income tax returns. In this way, an LLP avoids double taxation that occurs when corporations pay income taxes and then distribute the profits to shareholders who must also file self-employment taxes on those earnings.
Unlike in a general partnership, an LLP allows partners to have more flexibility when it comes to management and decision-making. This is because an LLP operating agreement can be used to specify the percentage of ownership, roles and responsibilities. Also, if an LLP's members want to add or retire a partner, the operating agreement should provide for this process MCA Portal. Having such an agreement in place can also help when it comes to adding or retiring partners. This can be a particularly useful feature for professional service firms.
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