Writing for VentureBeat, corporate lawyer Scott Walker says startup entrepreneurs should start a corporation instead of forming a general partnership for both short- and long-term success.
Walker says a partnership exposes each partner to additional liability that could be avoided by starting an LLC instead.
Giving an example, he says that if a business partner breaches a contract with a developer, the developer can sue both the company and each of the partners personally. That situation wouldn’t happen if the partners had instead formed a corporation.
Walker also says that business investors generally don’t invest in a partnership because of those inherent liability risks, and require the partners to start an LLC.
Another problem can occur if one of the partners decides to leave the company, according to Walker. If the agreement doesn’t cover that situation, then that partner could still own part of the company without doing any work.
In addition to protection against lawsuits, Inc.com says that starting an LLC can also have significant tax benefits for entrepreneurs. Allowing the company to be taxed as a corporation offers advantages on the state and federal levels.
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