What Are the Differences Between a LLP Company and Partnership
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Choosing the right structure for your business is a vital decision that can have both short- and long-term effects. It's important to weigh the pros and cons of each option and consult with your attorney, accountant and tax advisor before deciding which one is best for you.
An LLP is a hybrid entity that adopts some characteristics of both a LLP company and a partnership. Owners of an LLP are known as partners and may manage the company themselves (known as member management) or appoint one or more members or non-members to run the business for them (manager management). The management structure, profit-sharing and rights and responsibilities of each partner is set out in the LLP's operating agreement.
A key difference between an LLP and a traditional partnership is that in an LLP, owners have limited liability protection. This means that if the company is sued, partners' personal assets are not at risk for debts incurred by the business. However, it's important to note that if the court finds that the LLP attempted to undermine its creditors through improper distributions, the veil of limited liability may be pierced.
Another key difference is that an LLP must be incorporated with Companies House in order to operate. This can prevent other companies from using the same name and also provides public record of ownership information, including financial accounts. Unlike partnerships, LLPs must file taxes annually and prepare and submit accounts to the government.
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