Study: What are LLPs and LLCs and what are some advantages and disadvantages?
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Slide 1 (0:15s)
Links to an external site.
Welcome to Introduction to Accounting Preparing for a User's Perspective What are the common forms of business ownership structure in the United States and what are some advantages and disadvantages of each? LLP & LLC
Slide 2 (0:25s)
Links to an external site. Limited Liability Partnership (LLP) and Limited Liability Company (LLC)
I will not take a lot of time to work through all the details of LLP's or LLC's, but please do take the time to study the LLC or LLP column in the Summary of Business Ownership Structures table focusing on the advantages and disadvantages.
At this point, I just wanted you to know that these additional business ownership structures exist.
Slide 3 (0:29s)
Links to an external site. I also wanted you to know that LLPs and LLC's are effectively a hybrid of the advantages and disadvantages of the 3 ownership structures we have already discussed. They were primarily created to marry the key benefit of sole proprietorships, which is single taxation, with the key benefit of corporations, which is limited legal liability.
Slide 4 (0:7s)
Links to an external site.LLP’s
Links to an external site.first started to appear in the United States in the early 1990’s.
Slides 5 & 6 (1m04s):
Links to an external site. The main reason LLPs were created was to provide the innocent partners a financial shield from significant legal liabilities incurred by the partnership. In other words, if the partnership were to incur a significant claim that the LLP’s resources could not satisfy, the LLP’s creditors would not be allowed to access the innocent partners' personal assets to satisfy such claims, but they would be allowed to access the responsible partners’ personal assets
Links to an external site.. Innocent partners certainly could lose all that they had invested in the partnership, but at least their personal assets would be shielded from creditors' claims.
Another key benefit of an LLP is that it has single taxation just like a partnership.
Slides 7 & 8 (:46s)
Links to an external site.Limited Liability Companies
Links to an external site. (LLCs) also have advantages of both a partnership and a corporation. LLCs seem to have their origin in the German law of 1892 authorizing businesses with limited liability (Gesellschaft mit beschrankter Haftung GmbH). Because an LLC is not a partnership, the owners are called members rather than partners. The main benefits of LLC’s are that they are similar to corporations in that they have limited liability protection for the members similar to that of shareholders in a corporation and they are similar to partnerships in that they have single taxation.