Partnership or LLC?

[leggomygreggo]

I am planning to start a business with a friend of mine and I am confused as to whether i should form a partnership or an LLC. What are the pros and cons of each? Any help would be greatly appreciated

[akula]

I am planning to start a business with a friend of mine and I am confused as to whether i should form a partnership or an LLC. What are the pros and cons of each? Any help would be greatly appreciated

what kind of business?

[Cognition]

I am planning to start a business with a friend of mine and I am confused as to whether i should form a partnership or an LLC. What are the pros and cons of each? Any help would be greatly appreciated

I suppose you're inquiring about entity types - a general partnership or limited partnership [LP] vs. a limited liability company [LLC]. Correct?

[radreality]

as a general rule most successful entrepreneurs that know what they are talking about and what most attorneys will tell you, is never do a partnership; there is way to much liability, doesn't matter if its a general partnership or a limited partnership. BUT it depends on how much upfront investment you want to do, partnerships are cheaper to form.

The question shouldn't be if you want to do a partnership or an LLC; it should be whether you want to do an LLC or an S-Corp. And that usually depends on the state you live in and the type of business you are running. It comes down to liability and taxation, an LLC or S-Corp will be much better than a partnership 99% of the time.

______________________________
Robert Falk
Business Developer / Investor
Self Help Forum | Business Resources

[buynick]

I would recommend LLC and hiring your friend on as an advisor, or whatever his speciality is. Keep control in your hands so that if he bolts you can still have the business.

[amg2000]

I am planning to start a business with a friend of mine and I am confused as to whether i should form a partnership or an LLC. What are the pros and cons of each? Any help would be greatly appreciated

You can get some information here... Incorporate: Incorporation,LLC,Nonprofit - BizFilings

I also recommend speaking with an accountant/tax attorney to make sure you have the latest information.

[leggomygreggo]

My business is going to be a being space for mobile workers. Basically people that are on the go alot can come in here and be able to actually do work and relax.
So what would be better; an S-corp or an LLC. Im just kinda confused about this whole liability thing=/

[ltressel]

I would do an LLC. Assuming that this is still your school project. S-corp and C-corp has a lot of complications for a novice person such as you. LLC was implemented for small business owners who are prone to make more mistakes than corporate suits.

Here's more info for your consideration:

An LLC offers investors more freedom in how they can manage their investment, and may not require some of the formalities usually required with a corporation, such as annual meetings of stockholders. In addition, an LLC can have tax advantages over a corporation. For example, an LLC with only one owner may not have to file a separate tax return and its profit or loss can be included on the owner’s tax filing. In contrast, a corporation must file a separate tax return.

***source Incorporate Your Business With Online Incorporation Services From The Company Corporation


I hope this info helps.


LT

[ChiTown2222]

To echo what ltressel just said, an LLC may be your best option.

But, there is another side of the coin... if you invision your business being much bigger one day you may want to go with an S-corp. It's a cakewalk to drop the S status one day to just become a plain old C corp, which is much more attractive to potential investors than an LLC. While changing over from an LLC to a C corp can be a huge pain in the you know what,

With that being said, an LLC is still probably your best bet.

[Cognition]

My business is going to be a being space for mobile workers. Basically people that are on the go alot can come in here and be able to actually do work and relax.
So what would be better; an S-corp or an LLC. Im just kinda confused about this whole liability thing=/

Whether you form an S-corp or an LLC, you protect yourself with 'limited liability', which simply means that your personal assets are protected from litigation, creditors, etc., when the circumstance is business-related [unless you pierce the corporate veil].

I recommend picking up a very information book called, "Own Your Own Corporation", written by Garry Sutton who has decades of experience in business law. That book should answer all your inquiries.

Furthermore, setting up a LLC is not hard at all. In fact, you can do it by yourself once you understand the formalities and verbage [jargon] associated setting it up. You're basically completing a Certificate of Formation with the state you're incorporating in along with Articles of Incorporation.

Having service companies or an attorney to do this for you for $250-600 is money down the drain [unless you don't know what you're doing].

[Cognition]

In addition, an LLC can have tax advantages over a corporation. For example, an LLC with only one owner may not have to file a separate tax return and its profit or loss can be included on the owner’s tax filing. In contrast, a corporation must file a separate tax return.

Err...no, that's not a tax advantage necessarily. Yes, not having to file a seperate tax return is a convenience [because of the flow-through taxation feature of an LLC], but if the owner of that company wants to keep money in reserves and not have ALL the funds at their personal disposal, then this is a DISADVANTAGE.

WHY? The normal tax rate for a corporation is 15% [on the first $75K in profits] compared to an average of 28% on an individual's rate. Because of flow-through taxation [an LLC], you have to pay taxes at a higher rate on ALL the profits.

The solution? Simply form an LLC and elect for corporate level taxation [by simply filing IRS form 8832].

The result? You only pay a corporate tax rate [up to the first $75K in profits] of 15% on the money you keep in the company's reserves and only the individual tax rate [an average of 28%] on the money you decided to take out for personal income, like a salary.

[radreality]

Having service companies or an attorney to do this for you for $250-600 is money down the drain [unless you don't know what you're doing].

Even if you know what you are doing, paying an attorney to form an entity is never money down the drain. An attorney will usually cost more than that though, usually between $750 and $1500.

Whenever you are forming a legal entity, why not seek experienced, expert legal assistance? The formation of a specific type of entity can be different from business to business, and unless you know everything about business law, then you should seek someone who specializes in it.

Successful people don't do everything themselves, they delegate what should be delegated to people who are smarter than them in various areas.
______________________________
Robert Falk
Business Developer / Investor
Self Help Forum | Business Resources

[Cognition]

An attorney will usually cost more than that though, usually between $750 and $1500.

I agree. My range was modest. But as far as forming a generic LLC, I don't see paying $1K+ in addition with state filing fees a financially intelligent decision [unless you don't know what you're doing].

Forming an LLC is NOT rocket science. Attorneys and various service companies make it seem it is, so having to pay exorbitant fees [for work that takes them 10 minutes to do] feels 'justified'. It's laughable.

Whenever you are forming a legal entity, why not seek experienced, expert legal assistance? The formation of a specific type of entity can be different from business to business, and unless you know everything about business law, then you should seek someone who specializes in it.

I said forming an LLC is rather a simple process that can be done practically by anyone who clearly understands the process of formation and the legal verbage therein.

But only those who know what they're doing.

Everyone else please seek competent legal advice.

Successful people don't do everything themselves, they delegate what should be delegated to people who are smarter than them in various areas.

I agree. However, successful people also know that keeping expenses low [especially for a startup] should be apart of their management savvy.

[ltressel]

Err...no, that's not a tax advantage necessarily. Yes, not having to file a seperate tax return is a convenience [because of the flow-through taxation feature of an LLC], but if the owner of that company wants to keep money in reserves and not have ALL the funds at their personal disposal, then this is a DISADVANTAGE.

WHY? The normal tax rate for a corporation is 15% [on the first $75K in profits] compared to an average of 28% on an individual's rate. Because of flow-through taxation [an LLC], you have to pay taxes at a higher rate on ALL the profits.

The solution? Simply form an LLC and elect for corporate level taxation [by simply filing IRS form 8832].

The result? You only pay a corporate tax rate [up to the first $75K in profits] of 15% on the money you keep in the company's reserves and only the individual tax rate [an average of 28%] on the money you decided to take out for personal income, like a salary.

Well-bravo Mr. CDALLEN/ Mr. Know it all. The question the kid asked is whether he should have an LLC or a Corp. I answered the question. I never claimed to be an expert in IRS loopholes. Hence, why I pay a good accountant to figure that crap for me. So spare us of your mumbo jumbo intellectual crap because at the end of the day no one should do their corporate taxes on their own. Let the EXPERTS deal with it. Save yourself some headaches the day some IRS auditor knocks on your door. Same goes for your incorporation and such....let a lawyer create it for you otherwise the day someone wants to pierce into your corporate veil...you're shit out of luck.

Anyway, we are advising a kid who's doing a school project- I doubt that he will pursue the venture. You're IRS loophole will give him extra credit. In any which case, I always advise people to talk to experts with Law degrees and CPA degrees to make their proper choices at the end of the day and take heed to a paid advice rather than forum wannabees.

LT

[radreality]

Anyway, we are advising a kid who's doing a school project.

you're the only one that has mentioned that this is a school project in this thread. This "kid" hasn't said anything along those lines. Maybe I'm missing something that was said in another thread. But whether its a school project or real world....shouldn't it be treated as if it was real? You don't learn as much when you dumb something down.

______________________________
Robert Falk
Business Developer / Investor
Self Help Forum | Business Resources