Investment partnerships carry high risks but may also bring high rewards. Holding stakes in such business ownership, you may have concerns about protecting yourself, your personal finances and your business earnings. The type of structure you choose for your business, such as a limited liability company, may impact operational and administrative factors, including your liabilities. While some options may suit one business, they do not always fit the needs or goals of another.
Setting up your investment partnership as an LLC may offer you certain advantages as your business profits and grows.
According to the U.S. Small Business Administration, structuring as an LLC allows you certain tax benefits. Unlike with a corporation, your business profits and losses pass on to your personal income for tax filing purposes. Therefore, you do not have to pay personal taxes on your earnings, as well as corporate taxes on your business’ earnings. You should keep in mind, however, that you classify as self-employed and must therefore pay self-employment Medicare and Social Security taxes.
Personal liability protection
Structuring your company as an LLC, instead of a traditional partnership or another formation type, may also provide some personal liability protection. An LLC separates your personal and business assets for the purposes of liability. Consequently, your personal assets, such as cars, homes and savings accounts, may not be on the line in the event your investment partnership gets sued or you must file for bankruptcy.
Pros and cons exist for all business formation types. Therefore, you may find it beneficial to consider these various benefits and disadvantages before choosing a business structure.