When forming a business, you have several options for the type of legal business entity you will form. The choice you make will greatly affect many aspects of your business, such as taxes and the legal documentation you must file. When making the choice, it is important to consider all aspects in order to ensure you make the decision that is right for your business.
Two of the most common business type options are an LLC and a partnership. These options general both require two or more people to form. They are similar in many ways, but there are also key differences that may help you make you final decision between the two.
One of the main differences that you will immediate notice is an LLC requires more legal action. To form a partnership, you just need at least one other person to start the business with you. To form an LLC, though, you must file legal paperwork, including an articles of organization. There may be additional filing requirements in your state.
Another key difference is that when you have an LLC, you get rid of the personal liability for your business debts. As a partner, though, you hold personal responsibility. This means if your company ends up in debt, creditors can come after your personal assets to recover their money. An LLC provides protection from this.
The main similarity between the two business forms is taxation. They both allow for pass-through taxation, which means taxes are filed for the business that are separate from your personal taxes. In addition, certain tax breaks are available for both types of businesses.
You also will need to follow all state requirements for both types of business. For example, if you live in Wisconsin, you will have to secure a EIN number in Wisconsin. If you are in North Carolina, then you would have to apply for an EIN in NC. you also have to file for a business name and fill out other legal documents based on which state you are in. To get assistance and learn more, you can visit IRS EIN Tax ID Filing Service here.