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Chapter 1.1, Problem 1CC


Corporate Finance

3rd Edition
Jonathan Berk + 1 other
ISBN: 9780132992473



Corporate Finance

3rd Edition
Jonathan Berk + 1 other
ISBN: 9780132992473
Summary Introduction

To Determine: The meaning of Limited Liability Corporation (LLC) and the reasons why it differs from Limited Partnership (LP).

Introduction: A limited partnership is otherwise called as LP; a type of partnership firm in which a portion of the partners contributes just fiscally and are at risk just to the degree of the measure of cash they have contributed.



A limited liability company is otherwise called as LLC; a form of business composition that joins qualities of both corporation and sole-proprietorship. A limited liability company is qualified for pass-through tax assessment highlight of a partnership or sole proprietorship, whereas in the meantime restricting the liability of the proprietors, like a corporation.

The following reasons support that Limited Liability Corporation differs from Limited Partnership:

  • Individual Obligation – The most vital contrast between the Limited Liability Company and Limited Partnership identifies with the individual liability of the members. A limited partnership is overseen by at least one general partner who controls the everyday activities of the business. A limited partner ordinarily does not have personal liability for partnership obligations, rather is not allowed to take part in the everyday administration of the limited partnership.
  • Formation – A limited partnership is made out of limited partners and common partners. Limited partners can invest resources into the business and share its profits and losses, however cannot be dynamic members to control the everyday activities of the organization. A limited liability company can have the same number of proprietors (known as individuals). The rights and duties of limited liability company individuals are sketched out in the operating agreement of a limited liability company.
  • Taxation – The advantage of structuring a limited partnership is for the pass-through duty treatment that is the partnership is not taxed and the partnership’s profits and losses are shared between the partners and taxed just once. A limited liability company is comparable to limited partnership which is regularly framed by entrepreneurs for a similar tax reduction. In any case, for government tax purposes, a limited liability company is dealt with as a disregarded entity.

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