When starting a business, there are many legal forms the venture can take. Two of the more well-known types are limited liability companies (LLC) and limited liability partnerships (LLP). Although both LLCs and LLPs have similar characteristics to corporations and partnerships, the way these structures are managed and taxed, as well as potential liability can differ.
First, LLCs can be either member-managed or manager-managed. This means that the members either participate in the daily activities of the company, or that management is controlled by a group of members or an outside entity. When an LLC is member-managed, because each member actively manages the company, they act as agents of the business and can complete legal transactions, such as signing contracts. The duties and powers of the members are generally outlined in the LLC’s operating agreement.
On the other hand, if the LLC is manager-managed, the members do not actively participate in company decisions. Members are merely passive investors. A manager-managed LLC would be beneficial to streamline management of the company when there is a large amount of members. In both a member- and manager-managed type of LLC, members are protected from liability except when an illegal act is committed.
Conversely, an LLP delegates managerial duties to its partners, similar to how a general business partnership is run. Typically, a partnership agreement is entered into which dictates the duties of each partner, and how decisions are made within the company. Partners can be held personally liable for any negligent act for which they are responsible.
Looking next at the issue of taxation, both LLCs and LLPs are pass-through entities. This means that gains and losses are credited to the partners or owners of the company. This is in contrast to C corporations, where income is taxed at both the corporate and individual level.
If you are starting a new business, or if you already own a business and would like to stay current on profitable structuring and various business agreements, the advice and counsel of an experienced business law attorney is often vital. Contact the experienced attorneys at Blodnick, Fazio & Associates, P.C. for a free consultation by calling (516) 280-7105.