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Partnership vs LLC: Which one should you choose?

On Behalf of | Dec 1, 2022 | Business Litigation

If you’re in the process of setting up a new business, you are probably thinking about what type of business you should form. It’s important that you make the right decision as your choice can have personal and professional consequences.

The most common entities people usually choose from are LLCs and partnerships. How do you know which one is right for you?

California Partnership

With a partnership, the owner of the business is termed a “partner”. Each partner has a certain amount of power and interest in the company, which also comes with responsibilities. If the business faces any legal action, the partners are jointly and severally liable for all obligations. This means that business owners can find themselves personally liable if a claim against the company is successful. There must be two or more parties for a business to be a partnership.

California LLC

An LLC, or limited liability company in California is a business entity that offers personal liability protection. If a business or individual files a lawsuit against the company, the business owner’s personal assets are protected and instead the liability falls to the assets of the company. An LLC can be a business operated by one or more members and is considered a good starting entity for an individual, or group of individuals who are new to operating their own company. Business owners who are looking to sell products or services through their LLC can benefit from certain special tax options which can be appealing.

There are advantages and disadvantages to both entity types. General partnerships are easy to set up and are less demanding to manage. When you’re just starting out it might be right for you. The reason people often opt for an LLC is due to the asset protection that it affords.

If you’re in the process of setting up a new business, it is a good idea to seek legal assistance from someone with experience in the area who can help you choose the right entity type for you.