Watch Your Language: Legal Terminology for Business Entities

Posted on March 9, 2014 in Business Essentials, Form a Company

Workshak’s post on limited liability partnerships (which pulls from Taxgirl’s post on ProBlogger) is right about one thing:  that limited liability partnerships (LLPs) are pass-through entities.

What the post doesn’t address is that the LLP statutes in many states make the form less-than-ideal for many multiple-owner businesses.  For example, in some states, LLPs can be used only for businesses whose principals are licensed professionals (e.g., doctors, lawyers, architects).  In other states, while the LLP will give you some shield against the negligence of your partner, your personal assets may be at risk when it comes to general contractual obligations (e.g., your lease) of the company.

As a result, if appropriate, a limited liability company (not partnership) may provide you and your co-owners with fuller protection against creditors’ claims.

Another good reason to consult with an attorney and an accountant before making your choice, instead of running to the online formation bureaus in the middle of the night.  Once you’ve made your choice, it’s not so easy to switch.

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