Choosing the appropriate legal structure is one of the most crucial decisions you must make when starting a business. Limited Liability Partnerships (LLP) and Limited Liability Companies (LLC) are two well-liked alternatives. Before choosing, business owners need to be aware of their key distinctions even if both offer liability protection.
Both the LLP and LLC are hybrid legal structures that include the advantages of both corporations and partnerships. Both provide limited liability protection, ensuring that the owners’ private assets won’t be at danger in the event that the company is sued or declares bankruptcy. The two architectures do differ in a few ways, though.
A partnership that offers some or all partners limited liability protection is known as an LLP. Professional service companies including those that provide legal, accounting, and architectural services frequently use it. Each partner in an LLP is exempt from liability for the conduct of the other partners. For instance, the other partners are not responsible if one partner is sued for negligence.
However, an LLC is a flexible business structure that combines partnership tax advantages with corporate liability protection. Small companies with a few proprietors who want to avoid double taxes should use it. Members of an LLC are its owners, and they have a choice in how they are taxed. They are subject to either individual, partnership, S corporation, or C corporation taxation.
Let’s now go on to the pertinent queries. Should I submit taxes if my LLC didn’t generate any revenue? Yes, it is the answer. You must still submit a tax return even if your LLC did not generate any revenue. This is so that the earnings and losses can be passed through to the members’ individual tax returns, which is what the IRS defines as a pass-through corporation.
Does an LLC need to file a tax return, too? Yes, even if there is no profit, an LLC must file a tax return. Even if an LLC did not engage in any commercial activity during the year, the IRS nonetheless requires them to file a tax return for informational purposes. Penalties and interest may apply if a tax return is not filed.
Finally, is it possible to form an LLC without a business? It is feasible to create an LLC without having a business, yes. To hold assets like real land or intellectual property, some people form an LLC. This enables them to safeguard their private assets while retaining management of the LLC’s assets.
In conclusion, it’s critical to choose the appropriate legal structure for your company. Making an informed choice can be aided by having a clear understanding of the distinctions between an LLP and an LLC. Even if your LLC does not generate any revenue, it is crucial to understand your tax responsibilities as an owner.