compare and contrast partnerships and registered limited liability companies as forms of business associations

Question

if you can give me an idea on ways to answer the question

Answer 1

To answer this sort of question, first define what each entity is, then describe the advantages and disadvantages of each. I've given you all that here, together with the sources.

A partnership is the relationship between two or more who join together to carry on a trade or business. Each partner contributes money, property, labor, or skills, and each expects to share in the profits and losses. A partner can be an individual person, corporation, trust, estate, or another partnership. All general partners are personally liable for partnership liabilities. There can be no limited partners in a general partnership.

ADVANTAGES OF A PARTNERSHIP
*Ease of formation.
Legal informalities and expenses are few compared with the requirements for creation of a corporation.
* Direct rewards.
Partners are motivated to apply their best abilities by direct sharing of the profits.
* Growth and performance facilitated.
In a partnership, it is often possible to obtain more capital and a better range of skills than in a sole proprietorship.
* Flexibility.
A partnership may be relatively more flexible in the decision making process than in a corporation. But, it may be less so than in a sole proprietorship.
* Relative freedom from government control and special taxation.

DISADVANTAGES OF A PARTNERSHIP
* Unlimited liability of at least one partner.
Insurance considerations such as those mentioned in the proprietorship section apply here also.
* Unstable life.
Elimination of any partner constitutes automatic dissolution of partnership. However, operation of the business can continue based on the right of survivorship and possible creation of a new partnership. Partnership insurance might be considered.
* Relative difficulty in obtaining large sums of capital.
This is particularly true of long term financing when compared to a corporation. However, by using individual partners' assets, opportunities are probably greater than in a proprietorship.
* Firm bound by the acts of just one partner as agent.
* Difficulty of disposing of partnership interest.
The buying out of a partner may be difficult unless specifically arranged for in the written agreement.

A Limited Liability Company (LLC) is created and regulated under state laws. An LLC is allowed to possess the limited liability characteristics of a corporation, but is treated as a partnership for federal tax purposes. A major advantage to an LLC is the same tax pass-through feature of an S Corporation. Furthermore, they offer the flexibility of a partnership without the restrictions of an S Corporation. They can have more than one class of stock, the number and type of members are not limited and there is flexibility in profit/loss allocation.

They also offer limited liability protection for all members. Any LLC member can participate in management without being exposed to personal liability. Contribution of property to an LLC is tax-free regardless of how much control the contributing partner has. Liquidation of an LLC is generally a tax-free event, and they are not required to file annual reports with Arizona Corporation Commission.

Disadvantages are that an LLC must have two members to file as a partnership for federal tax purposes (a single-member LLC files as a sole proprietor), earnings are generally subject to self-employment tax, state law may limit the life of an LLC, conversion of an existing business to LLC status could result in tax recognition on appreciated assets, and fringe benefits to partners are taxable.

Also, there is a lack of uniformity in LLC statutes between states. A firm operating in more than one state may not get consistent treatment.