What is the Difference Between a Limited Liability Company (LLC), a Partnership, and a Corporation?

If you operate or are thinking about running a small business in Florida, you might be interested in learning more about the types of business structures available. We often get asked about the difference between an LLC and a corporation, and the same with a partnership. There are three main types of business structures:

• Partnership and limited liability partnership (LLP)
• Corporation
• A limited liability company (LLC)

Partnerships:

Businesses that are formed via partnership agreements typically involve a profit and loss sharing arrangement between two or more people who are called “partners.” The partners then work together to operate the business through their desired management structure. Partnerships can take different forms: general partnerships; limited partnerships; and limited liability partnerships. In partnerships, the members are typically personally liable for the debts and obligations that the business incurs. This means that if one partner makes a business judgment error or incurs legal liability through the partnership operation, all the partners may be vulnerable to legal action. Conversely, however, in limited liability partnerships (LLP), some partners can be shielded from those financial obligations while some can have personal liability.

Corporations:

Corporations usually follow a more complex statutory regulation than partnerships and limited liability companies. Corporations are usually those companies that will engage in dealings on a mass scale, issuing stock options to their shareholders. In Florida, a corporation is formed by filing articles of incorporation with the state. Typically, a corporation is an institution with a separate legal form from its owners. The owners elect a board of directors, whose role is to monitor the corporation’s activity. Additionally, the owners (or shareholders) are usually shielded from personal liability when it comes to the corporation’s business dealings. In most cases, shareholders are only liable—in terms of debt or claims against the institution—for what they have invested into the corporation. Thus, the owners’ or shareholders’ personal assets are not at stake when it comes to the corporation’s dealings.

Limited Liability Companies:

A limited liability company (LLC) combines components of both a corporation and a partnership. Similar to a corporation, an LLC provides its owners (otherwise known as “members”) limited liability protection, meaning that the owner’s assets are protected from any obligations and debts that are part of the LLC. Therefore, an owner may not be liable for a mistake that his or her partner makes. Members of an LLC have flexible options when it comes to how their LLC will be managed and taxed, in that LLCs are not subject to mandatory requirements for drafting by-laws and conducting member meetings and minutes, which makes the structure relatively easy to form and operate. LLCs are dubbed to be “customizable” because the statutory scheme that regulates formation and operation allows LLC members to allocate management and share in profit/loss-sharing functions in almost any way they choose.

As you can see, there are different degrees of liability among these business structures, as well as different methods of organization. If you are considering forming a business structure in Florida or have questions regarding the legal formalities of your current business, contact our experienced business attorneys at Clayton Trial Lawyers today.