Answered: Why can't a business choose to for an…

Foundations of Business (MindTap Course List)

6th Edition

ISBN:9781337386920

Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Chapter15: Using Management And Accounting Information

Section15.5D: Liabilities And Owners’ Equity

Problem 3CC

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Question

Why can't a business choose to for an LLC, but they can form an LLP?

Expert Solution

Step 1

Every business is different in terms of tax situations, many regulations have notable changes from place to place.

Each business must introspect the possible types and take the help of a tax professional before making any decisions about tax liabilities.

LLC - Limited liability company

LLP - Limited liability partnership

LLC and LLP both have in common :

The owners will pay income tax on the share they get from the business profit
Business must maintain a track of managerial functions
A self-employment tax must be paid each business year
Should have an operating document for decision making
Succession planning of the ownership and dividends

Step 2

Differences:

For LLC the operating document is called the operating agreement
For LLP the operating document is called a partnership agreement
Owners of LLC are known as members
Owners of LLP are known as partners

Registration :

Businesses have to register as one of the specified type, Except in the case of a sole proprietorship
All the states will allow LLC, But may restrict the LLP to a few professionals such as architects, accountants, and attorneys
LLC is allowed to have one or more members
LLP can have general partners or limited partners
In LLP general partners are the ones who will be participating in the ownership of the business
In LLP limited partners are the ones who invest and don't have any participation in the management decisions

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