Are you thinking about forming an LLC with partners? It’s a great idea that helps you take advantage of key tax benefits. However, this structure is not suitable for every business.
Always take careful consideration when forming a new entity. Check out the article below to learn more about LLCs with partnerships and how they work:
Can an LLC have Partners?
LLCs can have multiple owners, which you can call business partners. Technically, LLCs do not have partners – they have members . However, partnerships can operate as a legal entity under a limited liability company (LLC) or multi-member LLC . LLC owners and partners are referred to as members.
LLC members frequently refer to their co-owners as “business partners” in everyday conversation.
Here’s a web page that also discusses LLCs.
Understanding Multi-Member LLCs
A multi-member LLC (MMLLC) is a limited liability company with two or more members. There are no restrictions on the number of members an MMLLC can have, and those members can be individuals or businesses.
The goal of forming an MMLLC is to protect the members’ assets. LLCs do exactly what their name implies. They limit the owners’ exposure during a civil dispute.
This protection is critical for many individuals and entities for several good reasons.
How an LLC with Partners Works
You’re probably thinking of yourself as a business partner if you’re starting a company with someone else. However, this does not imply that you must structure your business as a partnership. You can also form a two-member or multi-member LLC if that’s all that’s necessary.
An LLC can resemble a “partnership” between two people. However, it differs from a partnership in legal terms.
A limited liability company (LLC) offers liability and asset protection. It also provides potential for tax savings that a general partnership does not. LLCs can also serve as a pass-through entity .
However, forming and maintaining a partnership can be more straightforward.
Partnerships and Limited Liability Companies (LLCs)
When two people start a business together, they form an automatic general partnership. Creating a partnership does not require a written agreement or filing of paperwork with the state.
On the other hand, a written partnership agreement can save you money in the long run. They typically spell out terms like:
- Losses sharing
Forming an LLC entails submitting paperwork to your state to establish your business formally, and you will have to pay a filing fee. An LLC operating agreement , which serves the same purpose as a partnership agreement, should also be in place.
You and your co-owner are “partners” if your business is a general partnership. However, if you form an LLC, you will become “members” of the company. There is no such thing as an “LLC partner” because LLC owners are “members.”
Partnership and LLC Liability
There is no legal or financial separation between you and the business because a general partnership is an informal business formation. You are liable as a general partner for all business debts and liabilities committed by your partners or employees. The main disadvantage of general partnerships is their unlimited liability.
A limited liability company, on the other hand, has its own legal and financial identity. Unless you’ve signed a personal guarantee on loan, LLC creditors can go after the LLC’s money and other assets, but they can’t go after your bank accounts, homes, cars, or other possessions. You are still personally liable for civil wrongdoings, but not for that of your employees or co-owners.
Partnership and LLC Taxes
You are considered self-employed as a general partnership partner. You and your partner will separately report your share of the partnership’s expenses and income on Schedule C of your tax returns.
You’ll file an informational partnership tax return. Income and self-employment taxes will be your responsibility.
Unless you choose a corporation, LLCs are taxed similarly to partnerships, and you and your partner can be LLC employees if taxed as a corporation. You may save money on self-employment taxes and contribute more to your retirement accounts due to this fact.
You can also choose to have your business taxed as a C corp . The company will pay corporate income tax, and the money received is your taxable income.
Partnerships, LLCs, and Taxes
Some LLCs can elect S corporations taxation, with profits passing through to your personal tax return. Taxation can be challenging to understand, and there are numerous factors to consider. It’s a good idea to meet with an accountant regularly to discuss your company’s tax situation.
Other Partnership and LLC Considerations
There are a few other factors to consider when deciding whether to form an LLC or a partnership, including filing annual reports , paying fees, and following state laws. Understanding the differences between LLCs and partnerships will aid you in determining which business structure is best for your company.
If you’re thinking about forming a general partnership, talk to a lawyer about the benefits and drawbacks to ensure you’re making the best decision for your new company.
Multi-Member LLC vs. Partnership
While a multi-member LLC uses partnership taxation, it is not technically a partnership in structure or classification. An LLC is a separate tax entity from a partnership, and it only uses a partnership’s tax structure because the IRS has not created a tax designation for LLCs.
Multi-Member LLC Operating Agreement
A multiple-member LLC operating agreement is for LLCs with more than one owner. Legal professionals recommend them to clients since they are the only written document identifying a company’s owners and the percentage of the company they own.
LLCs do not issue shares like corporations and instead use a percentage of ownership. You should sign the multi-member LLC operating agreement and distribute copies to all members. At least one original should remain at the company’s headquarters.
How Many Partners Can an LLC Have?
LLCs cannot have any partners since LLCs are not partnerships. Instead, LLCs can have an unlimited number of owner-managers. Only S corporations are exempt from this rule.
You can add members to your LLC as an investment opportunity. If you want to grow your organization while achieving specific tax goals, then an LLC may be right for you.
The one caveat to this rule is concerning offering stocks on the public market. Publicly traded companies must register as a corporation to receive this advantage. However, there are trade-offs to forming a corporation, so you should speak with a professional to figure out your options when necessary.
Here’s another web page that describes LLCs.
What Are LLC Partners Called?
LLC partners are called “members.” A member is someone who owns all or part of an LLC. An LLC can have one or many members. Members of some LLCs operate and manage the business.
Other LLCs have at least some members who are not actively involved in the company’s management, and managers are in charge of those LLCs. You should always seek professional and personalized legal advice when forming a new entity or joint venture.
Are you thinking about forming an incorporation or limited partnerships? Corporate lawyers can help you draft the right agreements while managing LLC costs. They’ll ensure that you achieve the best possible result for your situation.
Post a project on ContractsCounsel’s marketplace to get flat fee bids from lawyers for your project. All lawyers are vetted by our team and peer-reviewed by customers for you to explore before hiring.