Being an entrepreneur these days is very common. Whether it is a small business or a large company, starting a business is an exciting time for individuals in Illinois and elsewhere. However, it is also a time where many serious and important decisions are made. And these decisions are required from the very start, such as deciding what type of business to form.
Starting a partnership has its benefits; however, some business may fair better by establishing a LLC. While ach has their pulses and minuses, it is important to understand what is a better fit. To begin, a partnership cannot exist without more than one co-owner while an LLC can exist with just one entrepreneur. For a partnership, a partnership agreement will define the terms of the partnership, such as each partner's share of the entity.
A major difference between the two business formations is how they are taxed. A partnership is considered a taxing entity. This means that the partnership will file a tax return but will not owe taxes. Each partner then uses the return documents so they can report profits and losses experienced individually. On the other hand, LLCs are considered to be pass-through entities. This means that the profits or losses generated by the company can be claimed on personal tax returns.
Another difference occurs with liability. An LLC protects a person from becoming personally liable in cases of debt or a lawsuit against the business. However, in a partnership, each partner will be held personally liable.
Because no two businesses are exactly the same, no two business owners will make the exact same choices. Because of this, it is important to fully understand the different business types one can form and what suits your business needs and best interests.