Case Study: The Benefits Of A Limited Liability Company

| A general partnership is comprised of a group of two or more individuals who enter into an agreement to start a business. The partners and the business are legally the same. The partners enter into an agreement called the articles of partnership and are typically equally active in the business and the business’s management, unless otherwise stated in the partnership agreement. All profits and losses are shared by the partners in a joint business venture.

Many believe that liability is a biggest issue in a general partnership than in a sole proprietorship. The owners of the company are still fully liable for any debts the company may accrue as well as the liability for any lawsuits that may be brought against the company. However, the bigger issue in a partnership is that now each partner can be liable for the other partner’s actions. If one partner is sued for malpractice, the other partner may suffer because of it.

When it comes to partnerships Alex, Bill, Carl, and Devon will have two options- a general partnership or a limited partnership. Partnerships are beginning to be a business form of the past. Once upon a time, partnerships were “the default form of business and provided the benefit of pass-through taxation, but lacked the important feature of limited liability” (Chrisman, 2010, p. 465). In a general partnership, each partner associated with the entity will be held liable for their own business decisions as well as

Liability All liabilities are the responsibility of each partner. In the event of litigation, any creditors can go after the personal assets of each partner to recover any debt owed. But since liability is spread out between the owners, one may feel less risk is being taken. 2. Income Taxes General partnership may also benefit from pass-through taxation, meaning the partners are taxed like sole proprietors. Business income is reported on the personal tax filing while business losses can be deducted to reduce personal tax liability. The partnership itself is not subject to federal income tax. However the partnership needs to file an information return utilizing the IRS Form 1065. 3. Longevity or continuity of the organization Once the partnership agreement is fulfilled, the general partnership may dissolve. A buy/sell agreement may be included in the articles of the partnership to allow the

Convenience/Burden- Like a general partnership a limited partnership is easily formed and can enjoy pass through-taxation. It can also be easier to get financing with a limited partnership. A downfall of the limited partnership is that the death of a general partner can dissolve the partnership unless a prior agreement has been established.

A limited liability company protects each partner from personal liability for certain obligations of the company. An important difference from other partnerships is that each partner is liable for the debts and obligations of the partners. With limited liability Company, each state has its own laws governing partners for these vessels. Some states allow only certain professions, such as lawyers and accountants to form LLP. Some states only provide protection from liability for negligence claims, leaving personally responsible for other types of requests partner. For tax purposes, profits are divided equally between the partners and the partnership is not taxed separately.

Liability- The general partner would be liable for all unlimited responsibility on all tasks and debt, while the limited partner will not loss more than their investment.

This protects the limited partners from the full liability that is shared by the general partners.   Income Taxes – The limited partner’s profits are considered personal income and taxed as such. All profits from the limited partnership are considered personal income and taxed at their personal tax rates.  Longevity / Continuity – The continuity of the business is not affected by the death or disassociation of a limited partner.  An advantage for a limited partner is that the limited partner’s investment takes priority in the general partnership dissolves due to a death or disassociation of one of the general partners.

A limited liability company consists of a single owner, or sometimes more than one owner, and are not taxed as separate business entities. All profits and losses pass through the business to those who own the company. Owners must report profits and losses on their personal tax return filing as a corporation, partnership, or sole proprietorship. If the LLC is ran by a single owner, they file a 1040 Schedule C form as a sole proprietor. Partners file a 1065 form consisting of a partnership, and a form 1120 is filed if the LLC is filing as a corporation. The LLC must be registered such as the State Corporation Commission, Department of Commerce and Consumer Affairs, Department of Consumer and Regulatory Affairs, or the Division of Corporations and Commercial Code. The great thing about an LLC is that the owner has freedom in management. The owner is able to run the organization as they see fit not answering to anyone,

A2d. Partnership Income and Losses: Income and loss from a partnership is business income. The loss or income for the business is reported to the IRS on form 1065 but the partnership does not pay taxes on the income. Instead, the profits or losses are passed through to the individual partners on Schedule K-1 and they account for the taxes on their individual tax returns. Spouse A’s $142,000 from Schedule K-1 will be reported as income on their 1040 tax return. The $85,000 in withdrawals from the business will not be

Profit retention – In a partnership profit and losses are shared unless partners agree to

Limited Partnership: This partnership consists of a blend of both general and limited partners. This kind of agreement/partnership lets the general partner manage the entire operation, but they are still fully liable for debts. The limited partner only invests his/her money, and can only lose what they invested.

Limited liability Company (LLC): Business’ owners are only subject to limited liability for company’s debts and actions. Owners will be only liable for their own mistakes or negligence that they may show in occasions.

Longevity: Similar to a sole proprietorship, in case of death or incapacity of a partner the

There are a number of forms of ownership that the business can take. The main forms are sole proprietorship, partnership, Limited Liability Corporation, corporation and S corporation. There are advantages and disadvantages to each of these forms that will be discussed in this section. A sole proprietorship essentially has the person as the business. In this situation, the proprietor bears all of the risk involved in the business. Business income flows through to the proprietor's personal taxes. For some individuals there are tax advantages, but for many the appeal of the sole proprietorship is its simplicity. The IRS defines a partnership as a relationship existing between two or more individuals who joint to carry on a business. Partners divide income according to their own agreement and that income flows through to their personal taxes. Partners also have a high level of liability for any legal action that befalls the company.