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LLC vs Partnership

Two of the popular business structures are the Limited Liability Company (LLC) and the partnership.  When you’re making an LLC vs partnership decision, you need to understand the advantages and disadvantages of each entity.

First of all, you need to understand that there are two major divisions in the partnership world.  There are general partnerships and limited partnerships.

In a general partnership, each of the partners is totally liable – personally liable – for all of the business liabilities.  Any one of the partners can bind the partnership.  If the partnership is bound, so are all of the other partners.  Everybody is personally on the hook.

Never place yourself in a position where you are legally responsible for what somebody else does.  That’s what’s happening in a general partnership.  The knee jerk reaction is never use a partnership.  The general partnership vs LLC decision is a no brainer.

Having said that, there are a limited number of circumstances where a general partnership would work well.  For example a husband and wife team in a community property state in a low liability business might consider a general partnership when they come up against the general partnership vs LLC decision.

Limited partnerships are very different than general partnerships, because in a general partnership, the limited partners are only liable to loose up to the amount they paid for their limited partnership interests.

With a limited partnership, there are one or more general partners who are personally liable.

When you’re deciding limited partnership vs LLC, you need to remember that in the limited partnership, there is a general partner in addition to the limited partners.  Lots of shark attorneys will tell you to pick the limited partnership and then have a corporation or LLC act as the general partner.

When you are told to use a corporation or LLC as the general partner, in 97% of the cases it is just a come on by the attorney to charge you for two entities instead of only one.

When it comes to limited partnership vs LLC, there frankly aren’t a lot of things that a limited partnership can do that an LLC can’t do better.  Plus, with the LLC there isn’t any general partner, thus nobody needs to be personally liable – provided the LLC is formed correctly and then it is maintained properly.

So, in most cases you can just skip the limited partnership and go directly to the LLC.

An LLC can be taxed as a partnership, so the tax considerations in the LLC vs partnership decision aren’t going to be a big decision.  The LLC clearly has more flexibility.

When you’re looking at an LLC versus partnership choice, the asset protection is the most important issue.  Obviously, the general partnership doesn’t offer any “limited liability protection.”

The limited partnership offers limited liability protection for the limited partners, but not the general partner(s).

The LLC offers a full “corporate shield” limited liability protection.  Plus, the LLC has the charging order protection of a partnership.  There are currently 3 or 4 states where the limited liability partnership offers more charging order protection than a single member LLC.

I’ve got a concise 22 page eBook on the charging order protection called, How to Double Your Asset Protection.  It is something you need to know about that your attorneys and LegalDoom websites never tell you about.  If you know what to do, you can double your asset protection security.

In the LLC vs partnership game, the LLC is probably the clear winner in almost every case.