Starting a business will require you to make a lot of decisions. One of the most important ones would be to decide on the most beneficial business structure. 

This decision affects your business more than you could imagine. The ramifications could range from administrative, financial and legal to even your company’s name. 

Oftentimes, businesses having more than one owner structure the company as a Limited Liability Company (LLC) or partnership. But the most important question is which one should you choose. Keep reading if you wish to know it.

LLC Vs. Partnership

LLC and partnership possess many similarities. For example, both will require you to register with the state, i.e., where you want to operate your business. 

The next similarity is that neither of them is subject to paying taxes. It means it is the responsibility of each partner or member to file the tax return. Furthermore, both share out losses and profits directly with the member or owner. 

As far as the differences are concerned, there are some. It is important to take note of these similarities and differences before choosing a form of business. You can also get familiar with the business entity laws of your state before you form an LLC or partnership.

Below are usually the things that differ between a partnership and LLC.

Paperwork

Registration and tax paperwork for partnership and LLC will differ depending on the business entity type.

Cost of Registration

Registration fees may differ as per the state or business type.

Security Laws & Regulations

In this case, limited partnership interests are regarded as securities and will be subjected to security laws and regulations. It is similar to that of stock sharing. 

If the partnership has less than 10 members who live in the same state, you won’t have to stick to the security laws. However, make sure you cross-check. In some states, the limited number of partners is 35.

Taxation

As discussed, both partnership and LLC possess pass-through taxation. But the taxation may still vary based on the entity type you need to form. If needed, you can also consult with a professional tax advisor.

Which One Should You Choose?

Choosing between an LLC or partnership is a critical business decision. It is going to affect your liability, taxation and organizational structures for an unlimited time. So, you need to make a well-informed choice.

Besides, every business is different and every owner has a different opinion on how to manage and run their organization. So, there isn’t any right or wrong answer for this. The only best piece of advice is to come to a decision by considering your business structure. 

You can also consult with your business partners if investing in an LLC or partnership is worth your time and money. You can even have a word with your attorney or accountant regarding this and ask them for advice before making a choice.