The difference between a limited liability company and a partnership

The difference between a limited liability company and a partnership

If you want to form a company, you will most likely consider two types of them. These include the partnership, which is the most popular form of company, and the limited liability company, which is the most popular business partnership. Before making a decision, familiarize yourself with the elements that differentiate them so that you can make the most fitting and best choice. Read the article to the end and you will know the difference between a limited liability company and a partnership.

Legal personality

A civil partnership is not an entity separate from its partners. This means that it has no legal entity and no legal personality. The partners of the partnership are parties to all contracts and they also appear personally in any court or administrative proceedings. On the other hand a limited liability company has a legal personality. It means that it is a subject of rights, as well as obligations resulting from contracts and other legal events. Such a company can act as a party to administrative and court proceedings.

The difference between a limited liability company and a civil law partnership – Liability for obligations

In case of a civil partnership, the partners are jointly and severally liable for the liabilities of their company. If the assets of the company are not able to cover the debt in its entirety, the contracting party has the right to demand payment from the private assets of the partners of the company. It is completely different in case of a limited liability company, where partners are not liable for company’s debts.

Liability for liabilities

Regulations under which the company is subject to

The way of operating of a civil law partnership is regulated by the Civil Code regulations, which are much less complicated. A limited liability company on the other hand is regulated by the Commercial Companies Code.

Difference between a limited liability company and a civil law partnership – Bodies through which the company operates

A civil law partnership is represented by its partners and not by a board of directors. This is in contrast to a limited liability company which operates through bodies such as a board of directors, a supervisory board and a shareholders’ meeting.

Taxes and Social Security

Partners of a partnership as natural persons pay income tax as natural persons. In addition, Social Security is paid according to normal rules. In case of a limited liability company as an entity under commercial law, the company pays CIT and its partners pay PIT on the dividends paid to them (it is not obligatory and cannot be charged to costs).

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