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Does An LLC Provide More Liability Protection Than Other Entities?

Business Law Tips & Advice

Attorney Nate Gilbert

Generally speaking, an LLC is the most popular form of corporate entity, and will most likely serve all of your needs for your small business.  But there are other forms of corporate structure to consider, so is the LLC right for you?

Limited Liability Companies offer liability protection for the owners of the business.  This is the main concern for everyone who starts an LLC—It is in the name after all.  But that liability protection comes at a price: corporate formalities.  Corporate formalities are all the things you would associate with the regular conduct of business: accounting for funds, regular meetings with a quorum in attendance, meeting minutes and resolutions, and proper procedures for adding members to the company or selling shares.  These corporate formalities are the main burden in LLC management but are also the only point in having the LLC.  Without these formalities and procedures, you lose the main point of the LLC.

Partnerships can be easier to run, but your lose your protection.  General Partnerships, for instance, you do not need to file anything with the state, pay any fees, or create any kind of operating agreement.  You and at least one other person can form a partnership and be off and running within minutes.  However, you won’t have much corporate liability protection, if any, and will be personally liable for the debts of the company.

Limited Partnerships are one step above General Partnerships, where there are required filings and more formalities.  Formed with “general partners” and “limited partners” these entities do provide some liability protection in that the limited partners are liable only up to the amount of their initial investment in the LP.   However, the limited partners will have no managerial discretion in the running of the company and are more like silent investors in the business.  This is a stark difference in the LLC structure, where membership comes with voting power, however small that may be.

The LLC does provide more protection than partnerships, generally, but only so far as the members of the LLC follow the corporate formalities.  If you are not going to follow the corporate formalities, you may save some time and money by forming a partnership instead.  Whatever entity you choose for your small business, Texas Attorney Nathaniel Gilbert can help with the organization and management of your company.  For a free consultation with Nate about the various factors affecting your choice of entity, Call Now.

Nathaniel Gilbert

Nathaniel Gilbert is the sole attorney at The Law Office of Nathaniel Gilbert, PLLC. Practicing in the areas of Business Law, Nate assist clients with LLC formation and drafting contracts in the states of Texas, Colorado, and Kansas. He can be reached at 726-999-0087.