LLC vs LLP

A lot of people ask me about the difference between an LLC and an LLP. Fortunately for them and for you, the LLC versus LLP question is easily explained.

Formation of either an LLCs or LLPs are relatively simple if done correctly by a qualified person (Please only trust this to a Certified Public Accountant or a good attorney).

The creation of the new entity starts by filing articles with the home state's Secretary of State Office. The process varies from state to state, and the forms required vary from state tom state. There is no “universal” form. The documentation states the name of the new entity, provides a brief description of the business's activities, and supplies the intended ownership information. .

Here's the next thing to note if you're trying to figure out the difference between an LLC and LLP so you can make the right choice: LLCs and LLPs offer the same security. More specifically, both LLCs and LLPs protect owners from legal risks stemming from the activities of the LLC or LLP. Both LLC’s and LLP’s are great for passive activities such as rental real estate.

If an LLC or an LLP chooses to engage in an activity that results in a lawsuit, fine, etc., for example, the members of the LLC and the partners of the LLP don't bear legal liability as a result of their ownership status. Basically, the owners of a LLC or LLP get the same protection that is given to stockholders of a corporation. Think of you owning shares of Google; if Google gets sued for an anti-trust violation, the only thing you can lose is stock value. You wouldn’t be personally liable.

As with anything involving legal liability, it is best to discuss it on a situation by situation basis with a qualified attorney well versed in corporate litigation involving an LLC or LLP. There are situations were members of an LLC or partners of a LLP would be liable for the liability, think “strict tort liability” for example.

Outside of the extraordinary, both the Limited Liability Company and the Limited Liability Partnership provide the same basic legal protection.

Taxation Differences between an LLC and LLP?

As a broad generalization, LLCs and LLPs receive the same tax treatment. From inception and absent any elections to the contrary, both LLCs and LLPs would be taxed as partnerships. LLCs and LLPs would also have the option to elect to be taxed as traditional C corporations and also as an S corporation.

In many cases, partnership tax treatment saves taxes and makes it easy to form and dissolve a business entity. However, net active income earnings are subject to self-employment tax. This tax is 15.3% and can be quite daunting. But this is a difference between LLC & LLP verses Corporations in general. Specific business models need to be addressed with a qualified CPA (Certified Public Accountant).

The main deciding factor for the decision to create either a LLC vs LLP should be based on whether or not your type of business can operate as a LLC. For example professional service companies may not be able to organize themselves as a LLC. Please contact your licensure board to determine if a LLC is viable for your business.

Corporation or LLC

Corporation or LLC (Limited Liability Corporation)
Starting a NY corporation or an NY LLC is a big decision and not one that should be taken lightly.  It is important to weigh both the pros and cons of both legal entities.  The decision to choose your business identity should be discussed with either your CPA (Certified Public Accountant) or your attorney.  Please utilize one of these professionals to start your new business venture.  The tax consequences of either choice can be substantially different.  For example, an LLC pays self employment tax on the it's net income at the end of the fiscal year; while a S-Corporation does not.  This is just one of the many differences between the two.  Another example is that S-Corporation shareholders can draw a salary while LLC members cannot.  S-corporations file form 1120s, C-Corporations file form 1120, and LLCs file either schedule C (single member) or Form 1065 (multiple member).  Multiple member LLCs file consistent with partnerships.  S-corporations and C-corporations both file forms 1120s and 1120 respectively.

S-Corporation and C-Corporation tax reporting deadline is March 15th and September 15th (extension due date).
LLCs (Single or multiple member) tax reporting deadline is April 15th and October 15th (Extended due date).

New York LLCs are required to advertise in a periodical, this can be quite expensive especially in NYC and the surronnding boroughs.

New York S-Corporations currently are not required to advertise.
Contact your NYC CPA for details on setting up a new LLC in NYC.