Choosing your business entity can be a confusing process, especially when you're seeing options like "LLC" and "LLP." Laws can vary from state to state, but what is the difference between the two?
LLC (Limited Liability Company)
- Owners of an LLC are called "members" and they may include individuals, corporations, other LLCs, and foreign entities. With an LLC, members have limited personal liability for the debts and actions of the business, but not for another member of the LLC. If someone makes a mistake that requires legal action, every member could be held accountable.
- Some businesses like banks and insurance companies usually can't be organized as an LLC.
- LLC is not a recognized classification for federal taxes; a corporation, partnership or sole proprietorship tax return must be filed.
- Owners of an LLP are called partners. Much like a general partnership, but each partner isn't liable for the misconduct, negligence, or mistakes of other partners. They are only responsible for their own actions.
- LLPs are common for professional occupations that require a license, such as a legal practice or accountants’ partnership.
- The LLP's income is not taxed as a business, but it is taxed on an individual level when the profit is passed down to partners.
LLP (Limited Liability Partnership)
If you would like to learn about the exact laws for Minnesota business owners, contact Maple Grove business services attorney Chuck Roulet for a free consultation. He will be able to recommend whether your company should be an LLC or LLP, or possibly another business entity entirely. Call Chuck at 888-719-5589 and download a free copy of his book, Be Your Own Boss: A Fast and Friendly Legal Guide to Starting Your Own Business.