If you’re setting up a new venture in Texas, using the proper business structure is essential to ensure that your needs and goals are met. A limited liability company, or LLC, and a limited partnership, or LP, are two popular business structures that you may want to consider. Understanding the differences between them can make it easier for you to choose the best one to meet your specific needs.
Choosing between an LLC and an LP
Forming an LLC or an LP requires you to file a certificate of formation with the Secretary of State. Also, you’ll be required to pay a filing fee. To form an LLC, it must have at least one member. An LP has at least one general partner and one limited partner.
Benefits of forming an LLC or an LP
Knowing if it’s better to form an LLC or LLP for your business structure can depend on the level of liability protection you would like for each business owner. Also, it can affect how decisions are made. If you’re a member of an LLC, you’ll have personal liability protection from business obligations. By contrast, in an LP, only the limited partners have personal liability protection (if they do not take an active role in management), while the general partner(s) are liable for the obligations of the LP.
LLCs and LP’s are pass-through entities
Understanding the tax management of LLCs and LPs can also be helpful when you’re deciding on the proper business structure. LLPs and LLCs are pass-through entities. If you’re a member of either business structure, you’ll report the income you receive from the business on your individual tax return and pay a self-employment tax on your share of the business’s profits.
Knowing how an LLC and an LP operate should make it easier for you to decide on the one most suited to your needs and goals. When setting up your business structure, you’ll want to use the type that offers you the right protection.