Premium Essay

Partnership vs. Corporations

In: Business and Management

Submitted By sweetboos
Words 838
Pages 4
Partnerships vs. Corporations
Tracy Kamke
Professor Edward Hastings
ACC317
March 9, 2014

A partnership is an association owned by two or more people to carry a business or trade with each parnter contributing money, property, labor, or skill and all partners expecting to share the profits and losses. A corporation is a separate entity that has its own rights, privileges, and liabilities separate from its members. Whether you choose to be a partnership or corporation, depends on how much your federal income tax will be. There are different types of corporations and many different partnership types. There are two different types of corporations. You have the C Corporation, which has the toughest tax bracket; you are subject to double taxation. The first tax is on the company's net earnings, and the second tax is that each shareholder must pay tax on his or her dividend. A C Corporation can reduce or eliminate its federal income tax liability by distributing its income to the shareholders who perform services for the company (Battersby, 2008, p.10). The other is the S Corporation which resembles the partnership and report entities like partnerships. Partnerships are not taxable entities and are not subjected to federal income tax. In a partnership, you are required to file a Form 1065 to report the results of the partnership's business activities. There is a general partnership which is two or more partners that participate in management of the entity and no limited partners. A limited partnership is having both general and limited partners. "Partnerships are tax-driven and tax-affected entities" (Alfonsi, 2010, p.26). Partnerships can be flexible on how they structure their operations and between the owners. The flexibility can be with the gain or loss, deductions, amount being distributed, and allocations of income (Alfonsi,

Similar Documents

Free Essay

Corporations vs Partnerships

...Corporation versus Partnership Strayer University ACC317 Advanced Federal Taxation December 7, 2013 Starting a business is not an easy task. First, one must decide what type of entity the business will be in an effort to maximize profits and reduce tax obligations as much as possible. The two entities I will discuss are corporations and partnerships. A corporation is defined as a legal entity that is separate and distinct from its owners. Corporations have most of the responsibilities and rights as individuals, however corporations have the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. (Investopedia, 1) Deciding to elect to become a corporation has advantages and disadvantages. A few advantages and disadvantages are listed below: ADVANTAGES: * Capacity to act as a legal entity * Due to many individuals investing funds, a corporation has a bigger source of capital which allows for larger business undertakings * Unlimited life which allows time to establish a strong credit position * Stockholders have limited liability for corporate debts. The extent of their investment in the corporation is all the stockholders are held liable for, personal assets are protected * Shares in a corporation can be transferred without prior consent from the corporation’s shareholders * Centralized management under a Board of Directors DISADVANTAGES: * Legal requirements...

Words: 1583 - Pages: 7

Premium Essay

Bill and Darlene

...considered when choosing a business entity: liability, taxation and record-keeping (Entrepreneur.com). Liability Bill and Darlene need to determine to what extent they need to be insulated from legal liability. This can depend on the kind of business they’re planning to start. A business that has a large amount of fixed assets that require hefty investments may mean the potential first year losses will be higher than expected so it would be better to limit their personal liability for the business losses. A Limited Liability Partnership (LLP), a Limited Liability Company (LLC), or a corporation can allow them to insulate their assets in the case they are found legally liable for damages. An LLC allows any entity to be owners but they offer more flexibility than a corporation. This is important if Bill and Darlene decide to grow their business and add more members since there are no limits for an LLC yet they still retain the tax advantages of a partnership with pass-through...

Words: 914 - Pages: 4

Premium Essay

Legal Forms of Business

...Legal Forms of Business Mike Robertson LAW531 May 7, 2012 Julie Benes Legal Forms of Business The well-informed businessperson understands choosing the correct business form is important. The type of business form determines what type of business organized, how money flows in and out of the business, how the business and owners are taxed, and the levels of risk to owners. There are several types of business forms. These types are sole proprietorship, partnership, Limited Liability Partnership (LLP), Limited Liability Company (LLC), S Corporation, franchise, and corporation. The businessperson needs to have an understanding of which business form is justified for their business startup. The beginning businessperson looks at the sole proprietorship a majority of times because of its simplicity (Anthony, 2011). A sole proprietorship is the simplest form of business organization. The owner of the business, the sole proprietor, is the business. There is no separate legal entity. Sole proprietorships are the most common form of business organization in the United States (Cheeseman, 2010). One example of a business that becomes a sole proprietorship is an independent contractor. The future business owner completes work for a business, but they are not an employee of these companies, they are considered self-employed and therefore a sole proprietor. Most person call this “moonlighting.” For example, if an electrical contractor with a full-time job also does home electrical...

Words: 2331 - Pages: 10

Free Essay

Fiduciary Duties

...Title: Fiduciary obligations may spring up by reason of relationships of trust and confidence or confidential relations. Introduction Fiduciary is an important issue arises in business relationships, in partnerships, it helps create a fair business environment for all the parties when working together, in agency, it protects the principles' benefits, in corporations, it may lead the business operates properly and legally. Therefore, fiduciary obligations are closely related to co-operations Trust and confidence are the most important elements in these fiduciary relations, in this essay, the relationship of a fiduciary obligation and above relations will be demonstrated and explained. Table of Content Introduction P.1 Table of Content P.2 The Basic Concept of Fiduciary P.3 Fiduciary Concepts and Obligation vs Partnership Relations P.6 Fiduciary Concepts and Obligation vs Corporate Relations 1. Directors P.8 2. Promoters P.11 Conclusions P.13 Bibliography P.14 The Basic Concept of Fiduciary Fiduciary, under oxford’s dictionaries’ definition, is trustee who is given control or powers of administration of property in trust with a legal obligation to administer the beneficiary’s interest, and the Cambridge dictionary defines “relating to the responsibility to look after someone else's money in a correct way”. It is obvious that the fiduciary concept involves the element of mutual...

Words: 2685 - Pages: 11

Premium Essay

Limited Liability Corporation and Partnership Paper

...Limited Liability Corporation and Partnership Paper University of Phoenix FIN/419 November 26, 2012 Every business has a basic idea of the entity in which to establish. Capitalization and protection is the main focus to establish the business with a question of which type of entity should a business use to move forward. Businesses have a host of factors when making this decision, the most common forms of these entities are, partnership, corporation, sole proprietorship, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by the different state statutes. The following will list two of these entities and the business entity which I would choose. Limited Liability Corporation Limited Liability Corporation has a unique quality of being structured like a regular corporation, and having the attributes of a partnership. In a Limited liability corporation the owners are protected from personal liabilities, which are similar to a corporation, but have the tax advantages of the partnership. This means the creditors of the business may not pursue any of the personal assets of members of the LLC to recover any business debts. Also if a member of the LLC has any personal debt, the creditors may not attempt to recover from the corporation. LLC owners, called "members," can manage their businesses or hire professional managers. In addition, LLCs enjoy a lot of flexibility. For instance, they can have as many members...

Words: 901 - Pages: 4

Premium Essay

Acc 317

...Assignment 1: Partnership vs. Corporation Due Week 7 and worth 240 points Use the partnership and corporate tax returns for the practice sets titled, “Pet Kingdom” and “ROCK the Ages, LLC” that you prepared in Weeks 3 and 5 in order to complete this assignment. Write a four to five (4-5) page paper in which you: 1. Compare and contrast the tax rules and treatment applicable to corporations and partnerships. Indicate the major way in which the tax treatment affects the shareholders or partners. The tax rules for a corporation are taxed at a different level than the various business structures. Corporations are the only business structure that are required to pay its own income taxes based on the profits received. The corporation requires it to file a tax return using Form 1120 and pay taxes at a corporate income tax rate on any profits. When deciding on what amount must be paid at a corporate level, the amount of tax due must be estimated and are due by the end of the year and quarterly payments are recommended. The shareholders are affected by the corporation tax rules, because they are taxed based upon being owners and working for the corporation and required to pay taxes on their salaries and the bonuses they receive like any regular employees of a company. It must be understood that salaries and bonuses are being deducted as business expenses, so that means that the corporation does not pay taxes on them. A corporation is taxed on all its profits because it does not...

Words: 1934 - Pages: 8

Premium Essay

Differentiate Between the Business Entitites

...Being a desiring business owner, critical examination must be placed into the various business structures when opening your business. Each business requires the correct planning and structure in the business agreement. Without an agreement delineating the relationships between the members, managers, partners and shareholders, the court applies default provisions. There is a significant possibility that the default provisions dictating the law will not align with the needs of the organizers. The most common methods of business operations are as sole proprietorships, partnerships, limited liability companies and corporations. As such, after careful review and revision of the different business organizations, I have decided that I would establish a Limited Liability Company (LLC). A Limited Liability Company, quite simply is a company whose liability is limited. That’s the short version. The longer version is that a limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment and run without risk to a personal wealth. Essentially a Limited Company is seen as an entity in its own right, which can be subject to legal action. As a separate body, a...

Words: 2431 - Pages: 10

Premium Essay

Love

...Business Formation: Choosing the Form that Fits Review Questions 1. Describe the basic features that distinguish the four basic forms of business ownership: sole proprietorships, general partnerships, C corporations, and limited liability companies. 2. Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC? 3. How do limited partnerships and limited liability partnerships differ from general partnerships and from each other? 4. What advantages help explain why virtually all large companies are organized as C corporations? 5. What steps are involved in forming a C corporation? 6. Describe the relationship between a corporation’s common stockholders, its board of directors, and its chief executive officer (CEO). 7. How does a merger differ from an acquisition? What is the difference between a horizontal merger or acquisition and a vertical merger or acquisition? Give a real world example of recent merger to illustrate each type of combination. 8. Compare an S corporation with a limited liability company. Why do you think limited liability companies are currently more popular than S corporations? 9. What are the main advantages and disadvantages of a business format franchise arrangements for the franchisee? For the franchisor? 10. What is a Franchise Disclosure Document (FDD)...

Words: 1935 - Pages: 8

Premium Essay

Limited Liability Corporation and Partnership

...Limited Liability Corporation and Partnership Jacob Sanchez FIN-419 December 22, 2014 Michele Huss Limited Liability Corporation and Partnership Introduction Many people attempt to start businesses annually and need a little guidance on what their best choices are for forming the blueprint of their future endeavors. Limited Liability Corporations and Partnerships are a couple choices that can be chosen by some entrepreneurs. They have some things in common, and also have distinct differences. This paper will discuss how each type of business entity is formed, the tax benefits, some advantages and disadvantages. Lastly, these things will be evaluated to determine under what circumstances one should be chosen over the other. Limited Liability Corporation A Limited Liability Corporation, from now on an LLC, is a less complex formation of a corporation. It is formed by filling an articles of organization with the states Secretary of State office. This article will include the business name, the members, and in some states an operating agreement. (U.S. Small Business Administration, n.d.) In an LLC with more than one member an operating agreement is ideal, for structure and regulation. In most instances it will provide a roadmap of rights, arrangements, and profit sharing and loss. (U.S. Small Business Administration, n.d.) Taxation is an important aspect of forming a business, an LLC has many choices for taxation. An LLC can opt to file as a corporation, in which case...

Words: 1055 - Pages: 5

Premium Essay

C Corporations and S Corporations

...the business S-corporation-called the "C-corporation" (C-corp) for reasons we'll see shortly-and the system of taxing first the corporation and then its owners is called the "corporate double tax." "Pass through" taxation. The entity (called a "flow-through" entity) is not taxed but its owners are each taxed (more or less) on their proportionate shares of the entity's income. The leading forms of pass through entity (further explained below) are: Partnerships, of various types. "S-corporations" (S-corps), as distinguished from C-corps. Limited liability companies (LLCs). A sole proprietorship such as John Doe Plumbing or Marcus Welby, M.D. is also considered a pass through entity even though no "organization" may be involved. The first major consideration (in this case, a tax consideration) in choosing the form of doing business is whether to choose an entity (such as a C-corp) that has two levels of tax on income or a pass through entity that has only one level (directly on the owners). Losses are directly deductible by pass through owners while C-corp losses are deducted only against profits (past or future) and don't pass through to owners. The major business consideration (as opposed to tax consideration) in choosing the form of business is limitation of liability, that is, to protect your assets from the claims of business creditors. State law grants limitation of liability to corporations (C and S-corps), LLCs, and partners in certain forms of partnership. Liability for...

Words: 3563 - Pages: 15

Premium Essay

Management 101

...strength and decision-making power towards the company, everything can take place at the verdict of the sole proprietor owner, there are no corporate taxes, and to start a company legally is cheap to name a few. The disadvantage of a sole proprietor business is what can change the mind of a few when it comes to starting one. They are liable for all debts towards the company. Partnership is used a lot through many businesses. A partnership is formed between two or more people to invest and run a business smoothly. Advantages to name a few are Partnerships are relatively easy to establish, cost-effective as each partner specializes in certain aspects of their business, and may benefit from the combination of complementary skills of two or more people as in more knowledge, skills and contacts. The disadvantages are business partners are jointly and individually liable for the actions of the other partners, they must share earnings, and decisions are shared, so that a grasp of the weaknesses. Throughout the world we learned that the C corporation is known as the standard corporation and the S corporation has designated a special tax position with the IRS. Businesses set up in either...

Words: 464 - Pages: 2

Premium Essay

Lit1 310.1.2-01-06

...Part A (the report) SOLE PROPRIETORSHIP: This business entity is the most common business used in the United States. This entity is owned and ran by one individual where there is no legal distinction between the owner and the business. This legal name of the business is the owner’s name; however, the business may operate under a fictitious name by filing a DBA. This person is legally accountable for all elements of the business including finances, loans and debts. One of the advantages of doing business as a Sole Proprietorship is that it’s easy to create. Another key advantage is the autonomy. Since the owner or individual is the business, he or she may decide for themselves whatever business decision they feel is needed to make, including the business finances. Some disadvantages would be that it is impossible to bring in others to do business being there can only be one owner. This also makes it difficult to raise capital in terms of seeking investors. Tax planning can also be challenging for the sole proprietor. Since there is no legal distinction between the owner and the business, all the income generated by the business is treated as ordinary personal income to the owner. • Liability: Sole Proprietors have unlimited liability. There is no difference between the owner and the business. Therefore, the owner is personally liable and responsible for all the business obligations and debt. Doing so makes all of the owner’s personal assets reachable to creditors. • Income...

Words: 3092 - Pages: 13

Premium Essay

Forms of Business

...business: sole proprietorship, limited liability partnership, Limited Liability Company, S corporation, franchise and corporate form. This paper will also discuss the justification as to why this business form is preferred. Sole Proprietorship. Suzie owns a shop that does body wraps that helps individuals have slimmer waists and thighs. People are wrapped like mummies and the elastic wraps are saturated in a mineral solution to help assist in breaking down fat. She owns a small shop in a strip mall downtown. A Sole Proprietorship is a business that is owned by one person, and is commonly known as a small business. It is preferred by individuals who want to start their own business because they can make all the decisions regarding payroll, hiring and firing of employees ("Doing Business as a Sole Proprietor,") Business owners of this type file their own taxes. The owner can also sell the business without the approval from others, since they own the business outright. Personal liability is also a factor when opening a business as a sole proprietor. If for example, a customer gets burned by the wraps that are used and the customer sues Suzie, she will have to hire her own attorney utilizing her own funds. This can become very costly and personal assets may be at risk. She will also have to look into obtaining liability insurance for issues such as injury, burglary and the like (Cheeseman, 2010, Part VIII). Partnership. Chris and Jeremy decide to open a Barber shop...

Words: 1295 - Pages: 6

Premium Essay

Partnerships vs. Llc

...Partnerships vs. LLC An LLC is a better way to operate a business than a partnership. While LLCs and Partnerships do share some similar advantages and disadvantages, the LLCs ability to protect its members make it the superior business model. Limited Liability Companies are a hybrid. They share some of the same advantages of both the corporation and partnership (Reed,445). Corporations exist mainly to shield shareholders and owners from the liabilities of the company. The profits of the corporation are taxed both at the corporate level and on dividends. Limited liability companies are treated as nontaxable entities, much like partnerships. Partnerships are like the opposite of a corporation. At least one person must be responsible for company debts and litigation, but profits go directly to owners avoiding the "double taxation." Limited liability corporations offer limited liability protection to owners and members, and profits go directly to the members. Because an LLC is essentially the ideal business structure, many new businesses form as one. In an LLC owners are not personally responsible for company debts. This is the most important attribute of an LLC. In a partnership, the owners are personally responsible for business debts. If the assets of the partnership cannot satisfy the debt, creditors can go after each owner's personal bank account, house, etc., to make up the difference. By contrast, if an LLC runs out of funds, the owners are usually not liable. In 1988...

Words: 392 - Pages: 2

Premium Essay

Business Entities

...Business Entities Jessica Perez BUS 311 Business Law Instructor: Janet Fiorentino 12/1/2014 As the manager of Acme Fireworks, I need to gather information to help the owner determine whether or not he should continue to be a sole proprietorship or if he should switch to another business entity. I will help him do so by explaining each entity and how they relate to his business situation. I am the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner’s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed me that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he...

Words: 1327 - Pages: 6