Which Incorporation Is Best For You: Comparing LLPs and LLCs

By: Eric P. Rothenberg, Esq. If you are a small business owner, or considering starting your own business, it has always been important to know your options for creating a new entity with limited liability. The uncertainty and financial stresses of COVID-19 and the subsequent recession make decisions about incorporation even more important. In this article, I will review two common types of new entities for small businesses: limited liability partnerships (LLPs) and limited liability corporations (LLCs) Limited Liability Partnerships (LLPs) In a limited liability partnership there must be more than one partner. Each of these partners (called “partners”) receive personal liability protection as a result of creating the entity under the Secretary of State. Governance of an LLP is shared equally among all partners, as are profits and losses, like a general partnership unless the operating agreement provides otherwise under the Uniform Partnership Act. An LLP is also taxed

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What is the tax implication for a joint venture vs. a partnership?

By Eric P. Rothenberg, Esq. Partnerships and joint ventures share many similarities. However, there are significant differences business owners should be aware of when allying with another enterprise. Both are forms of legal structures used by business owners to combine resources, talents, or skills with another person or business. Business owners often mistakenly use the terms partnerships and joint ventures interchangeably. A partnership can be described as a voluntary association of two or more people who jointly own and carry on a business for profit, such as law firm partners who work together to provide legal services for gain. A joint venture, on the other hand, is typically a business undertaking by two or more people engaged in a single defined project. An expressed or implied agreement, a common purpose that the group intends to carry out, shared profits and losses, and each member’s equal voice in controlling the project

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I am setting up a small business on my own. Would I benefit from incorporating as an LLC?

In three words—yes and no. We have a new tax law this year that has what’s called a Qualified Trade or Business [QTB] deduction. It’s very complicated and before you set up an LLC or a S Corp, you would need to have a tax advisor run numbers. This deduction is not available to high income businesses [over $415,000 of taxable income for married filing jointly and $157,500 for all others.] This question cannot be answered unless you get help ASAP. While you would benefit greatly from incorporating your business as a limited liability company (LLC), as opposed to operating it as a sole proprietor or as part of a group of partners in a general partnership, there are some trade-offs to being a S Corp or an LLC or a proprietorship due to the new QTB deduct. An LLC is a relatively simple means of incorporating a business, with

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