When you acquire or start a business, you have to decide if you want your company to be an LLP, a LLC, or a corporation. You may be familiar with these terms, but do you know how they’re different and what they mean for your business? After writing your business plan, receiving your funding, and setting up a suitable location, you need to contact a business lawyer in Seattle to determine setting up a business and its legal structure. The legal structure you decide upon will determine if your company is an LLP, LLC, or corporation.
Legal Structure of an LLP
LLP stands for limited liability partnerships. These businesses have more than one owner and all owners have limited personal liability for business debts. Businesses most often structured as an LLP are practices set up by lawyers, doctors, and individuals in similar professions.
When a business is registered as an LLP, the owners of the company are protected from the mistakes and debts of their co-owners. For example, if one owner goes into debt, the other owners are not responsible for this debt and have no legal responsibility to use personal assets to settle the debt. A limited liability attorney in Seattle or Washington State should be consulted to help review the business contract and plan if your business will be set up as an LLP.
Legal Structure of an LLC
LLC stands for limited liability company. This structure is recommended for most small businesses. The reason why is because LLCs benefit from “pass-through taxation.” This means the profits from the business are not taxed separately. All profits and losses from the business are reported on the owner’s personal taxes. Also, LLC owners are protected from personal liability for debts or claims attached to the business, so they can only lose the money they invested into the business.
This means that if you purchase an existing business, the previous owner is responsible for clearing all the debts they accrued when they owned the business. The previous owner can use the money you pay for the business to settle the debts, but you’re not financially responsible for them. To ensure you don’t have to pay existing debts, you should acquire a limited liability attorney in Seattle or in Washington State. LLC laws can vary from state to state, but they also share many consistencies as well.
If you expect your business to grow and you plan to hire employees, a corporation may be the way to go. There are several types of corporations, including S-Corps, C-Corps, and now, even Benefit Corps. Corporations are required to pay taxes on their income and they must have a board of directors to make decisions, and this process must follow a formal process. However, the taxes paid are not always a reason not to incorporate, which is what most people believe. A corporation can have shareholders as well. In a corporation, shareholders are not responsible for any business liabilities, though they may have to pay taxes on any dividends or salaries they collect. Corporations must use a business lawyer from Seattle or other parts of the Northwest because they often have more complicated legal structures.