Partnerships and Limited Liability Companies
Partnership business involves conformity of two or more parties, or partners, to work together to advance one another. In this form of legal business, partners divide profits and management roles. Partnership business has two categories; limited partnership or general partnership.
Limited Liability Company (LLC)
This is a type of company that combines the aspects used in partnership and corporation. Protection is normally provided from personal liability for the debts incurred by the business, in the same way corporation does. It differs for corporation in the sense that it is a pass-through tax entity while corporation pays their own taxes. It is similar to partnership in the sense that losses and profits of the business pass through the owners of the business, who make reports on their personal return.
I consider the aspects of protecting personal property a better idea and reasonable in the idea the family assets of the LLC members are not interfered with. It is import o protect the family institution and separate it from business liabilities.
Limited Personal Liability
This business ensures protection from personal liability for claims and debts of the business. In case the business is unable to pay its creditors, such as landlords, lenders, and suppliers, creditors are not authorized to take personal properties that belong to the business owner. Creditors are only entitles to take what belongs to the business and not take what belongs to the owners of the business. However, as much as this protection applies, there are conditions that the owner of the business must comply with. There are situations when the LLC owners can be held personally liable for the business liabilities if he/she engages in practices including:
- injures someone, personally and directly;
- personally guarantees a business debt or bank loan which the LLC defaults;
- fails to make deposits of taxes withheld from the employees salaries and wages;
- when the owners does actions which are illegal, fraudulent or reckless to the extend of causing harm to the business;
- when LLC owner treats the business as an extension of his/her own affairs instead of a separate legal entity.
The LLC owner is expected to act fairly and legally, ensure adequate funding to the business, create and operating agreement and separate personal business from LLC. It is important for the business to consider good liability insurance which can protects personal assets in the case where limited liability does not protect them.
The income realized from the business normally passes through the company to the LLC members, who are supposed to report their losses and profits from their individual tax return. Though LLC itself does not pay taxes, co-owned LLC is required to fill form 1065, which is a yearly information return with the IRS.
LLC management is based on what is referred to as member management. The owner of the smallest LLCs has equal participation in the business management. I consider this aspect a great idea because every member feels important and necessary in all business processes. This factor encourages a person to engage in this kind of business.
Formation of LLC
The process of forming LCC involves filling articles of organisation which is also referred to as certificate of formation. It is possible to form LLC with only one person from any state registering the business on behalf of others. There are few details that a person is expected to give such as contact information, address and name of the registered agent who receives the legal papers on behalf of other interested parties. Normally, there is a small fee that is changed which ranges from $100 to $800.
The trick part about LLC is that when one person decides to leave, the business is dissolved on the basis of law. However, before a member quits from LLC, he/she must fulfill all necessary business obligations which includes; division of assets among themselves and clearing all the business debts. Normally, the buyout spells out clearly what should happen in the event of ending the business in case a member leaves, becomes disabled or dies. Therefore, the agreement spelled out may prevent abrupt ending of the business in case certain obligations are not met.
The fact that resignation of one member affects the entire business is a great disadvantage that spells out uncertainty of the business growth in future. When a member applies for dissolution of the company and is compelled to abide as a result of law, it becomes difficult to make progress based on freewill of every member. However, the idea that personal properties are protected from company’s liability encourages people to consider this kind of business.