LIMITED LIABILITY PARTNERSHIPS AND CORPORATIONS 6
LimitedLiability Partnerships and Corporations
LimitedLiability Partnerships and Corporations
Tocomprehensively understand the business environment and types ofbusinesses, it is important to understand the roles of each businessorganization. Two of the most common types of business organizationsis the limited liability partnerships and limited liabilitycorporations.
Alimited liability partnership, commonly abbreviated as an LLP is abusiness organization made up of partners. However, a limitedliability partnership has the characteristic number of partners whohave limited liabilities. According to Boone and Kurtz (2011), thesespecific partners are not therefore liable for the financialresponsibilities of the partnership. This is the feature thatintroduces the unique role of the limited liability partnerships asbusiness organizations that protect the personal estates of thelimited liability partners.
Anotherrole of the limited liability partnerships is to generate financialvalue to the partners with limited liability partners. It is theresponsibility of every business to generate business value to theowners and other stakeholders. The business value involves generationof profits for the active partners and the limited liability partners(Boone & Kurtz, 2011). According to Prideet al (2011), theowners of the limited liability partnerships are not personallyliable for the debts or financial obligations of the business.Therefore, the limited liability partnerships have a critical role ofgenerating business value that can be able to pay off the businessobligations. This will leave the owner of the business unit from theburden of holding a failing business.
Alimited liability corporation (LLC) is a business organization formedby shareholders whose personal estates are not liable for thebusiness obligations. The company provides the legal protection forits shareholders from being personally liable for the businessfinancial obligations (Dlabay et al, 2011). Therefore, the limitedliability corporation is a business organization whose financialresponsibility of the owners is limited by the shares and capitalinjected in the firm. This characteristic leads to the first mainrole of the business organization as provision of the legalprotection of the owners from the financial responsibilities of thebusiness. This means that the corporation has a responsibility ofmaking sure that the owners of capital, called shareholders areshielded from the financial obligations of the firm.
Anotherrole of the limited liability corporations is to engage in businessservices as a legal person and not a component of the owners. This isbecause limited liability corporations are legal entities that areseparate from the owners of the corporation. According to Prideet al (2011), limitedliability corporations are considered by the law to be legal persons.Therefore, they can exercise the rights and privileges that a legalperson ought to enjoy. For instance, they can own properties, sellproperties, sue parties in courts of law, respond to legal pursuitsand make decisions.
Inaddition, it is the role of limited liability corporations to ensureproper management of the business operations and assets on behalf ofthe shareholders. This role emanates from the fact that the limitedliability shareholders are supposed to provide capital and resourcesfor business management (Pride etal, 2011).At the same time, they are not liable for the business obligations ofthe corporation. This creates a special role for the business tomanage the resources of the business on behalf of the shareholders.
Circumstancesfor LLP or LLC
Choosingbetween these two types of business organizations depends on thecircumstances of business environment and the owners` priorities.When stating a business it would be essential to start a limitedliability partnership is when establishing a professional businesspractice. According to Pride etal (2011), professionalsprefer this type of business because they seek to avoid liabilitythat results from the mistake of another partner. This is a type ofbusiness where one or more of the shareholders are not activelypracticing professionals in the field (Prideet al, 2011).In this case, these partners will be regarded as investors in thebusinesses and will enjoy limited liability status. The professionalspracticing will however have an unlimited liability partnershipstatus.
However,different circumstances would lead to the establishment of a limitedliability corporation. When forming a large organization where thepeople working in the business are different from the owners, it isrecommended to start a limited liability corporation. According toDlabay et al (2011), thisis because the shareholders will be seeking to avoid businessobligations as personal obligations. This is because they seek toavoid paying for the mistakes by the management of the businesses.Therefore, the avoidance of business obligations by an entrepreneurbecomes a significant circumstance for establishing a limitedliability corporation.
Anothercircumstance for establishing limited liability corporations is whena business owner wants to have separate responsibilities and rightsbetween him and the business. This circumstance arises when anentrepreneur wants to maintain the business as a separate legalentity. The owner of the business would want to own personalproperties away from the business and the corporation owns separatebusiness estates from the owner (Prideet al, 2011).Moreover, the circumstance of continuity would influence the choiceof this type of business organization. An entrepreneur chooses toestablish a limited liability corporation when he or she wants thefirm to continue existing even after he has stopped being active inthe firm due to personal or natural reasons.
Boone,L.E., & Kurtz, D.E. (2011). ContemporaryBusiness. Hoboken,NJ: John Wiley & Sons
Dlabay,L., Burrow, J. & Kleindl, B. (2011). Principlesof Business.Stamford: Cengage Learning
Pride,W., Hughes, R., & Kapoor,J. (2011). Business.New York: CengageLearning