Partnership versus Corporation

Assignment 1: Partnership vs. Corporation Kimberly Aaron Professor: Margaret Parrish Acc 317 Advanced Federal a!ation "ecember #$ %&13

Partnership versus Corporation

This report will explain the current advantages and disadvantages of Partnership and Corporation to better understand which choice is better for you and your company Compare and contrast the advantages and disadvantages inherent in electing to become a partnership and a corporation. 'ndicate (ey aspects in )hich the res*lting choice is li(ely to impact ta! obligations. Partnership and Corporation are different in many )ays and depending on ho) yo* )ant yo*r company str*ct*red ma(es the different on )hich option yo* )ill choose to set *p yo*r company. Partnerships are *s*ally easier to set*p than beca*se o)ners +*st split the profit and file on their personal ta!es a Corporations have to file separately beca*se a corporation is a separate entity and its base on the shares the company holds. here are three ma+or forms of b*siness o)nership and they incl*de: ,ole proprietorship )hich is a b*siness that is o)ned$ and *s*ally managed by one person- it is the most common form. Partnership is a legal form of b*siness )ith t)o or more o)ners. Corporation is a legal entity )ith a*thority to act and have liability separate from its o)ners. ' )o*ld have to say that Partnership and corporation has it.s advantages and disadvantages for e!ample a

Partnership versus Corporation partnership has a fe) different types of partnership )hich is the

/imited Partnership )hich is a partnership in )hich all o)ners share in operating the b*siness and ass*ming the liability for the b*siness debts and then )e have the /imited partnership and it.s a partnership )ith one or more general partners and one or more limited partners$ and last )e have the Master /imited partnership and this partnership loo( m*ch li(e a corporation beca*se it acts li(e a corporation and is traded on a stoc( e!change b*t is ta!ed li(e a partnership and avoid those corporate income ta!. Partnership is advantage beca*se all profits of partners are ta!ed as personal income of the o)ners$ t)o or more people pool their money and credit. he disadvantages of the partnerships is that sharing profits can ca*se conflicts$ 0o* are also liable for yo*r partners mista(es as )ell as yo*r o)n and both are responsible fore the debt no mater )hich partnership ca*sed the debt. 1n the other hand )e have the corporation. 'magine that yo* are a Partner at 2al( 3pright Company. 4*stify to yo*r team )hy yo* elected to become a partnership in an effort to minimi5e ta! liability. Prepare a response to the ob+ection that this election )as the best choice. 1ne of the benefits of become a partnership is to avoid the do*ble ta!ation iss*e. 1)ners can at any time decide to in+ect more cash into the b*siness from their personal f*nds or nothing stopping them from moving monies$ property and other goods in and o*t of the service of the partnership b*t$ )ith a

Partnership versus Corporation corporation all monies m*st be acco*nted for caref*lly and transfer of physical property m*st be legally recorded. ' elected to become a partnership beca*se of the benefits that comes )ith being a partnership than a corporation$ beca*se it is a simplified approach to reporting ta!es. 1)ners +*st split the profit and

file this income on their personal income ta!. 2e are considered 6pass thro*gh7 )hich means all of the profits and losses are passed thro*gh to the o)ners. 'magine that yo* are the Chief Financial 1fficer 8CF19 at :o More 'ce$ 'nc. 4*stify to yo*r management team )hy yo* elected to become a corporation. he reason ' elected to become a corporation is beca*se of the advantages of the /imited /iability$ 1)nership easily transfers$ Perpet*al e!istence$ a! advantages and ;aising capital. ' )o*ld not be liable for the debt and obligations of the corporation$ ' can transfer the company as easy as transferring the shares and there are ta! advantages )hich are the small b*siness ded*ctions that )o*ld be *sef*l come ta! time. hese are some of the reasons that ' elected to become a corporation. "etermine )hether becoming a corporation )as a )ise choice as a potential strategy to minimi5e ta! liability as a res*lt. Provide s*pport for yo*r rationale.

Partnership versus Corporation here are some advantages and disadvantages of a corporation: A corporation can be s*b+ect to greater reg*lation that can add to the cost of doing b*siness and also the cost of corporation can be greater than for a sole proprietorship or a partnership. Corporation is re<*ired to (eep

records of its shareholders$ directors and officers and any changes. here is also the possibility of do*ble ta!ation b*t over all it )as a )ise choice beca*se it is easier to raise capital for a corporation$ lenders are more )illing to lend then to a partnership. For e!ample if and anytime )e can.t pay o*r debt the creditors have not right to claim payment from the shareholders. hese )ere the reason ' choose the corporation over the partnership. Analy5e the steps that the leadership in a partnership or a corporation m*st ta(e in order to change the entity.s e!isting election. Provide e!amples of circ*mstance *nder )hich changing the e!isting election )o*ld be appropriate. 'ndicate ho) this election change$ once complete$ may either generate a ta! liability or be a benefit. Provide s*pport for yo*r rationale. 6The U.S. tax law governs the classification of a form of foreign business organization for U.S. tax purposes. The check the box regulation under IRC section !"# are generall$ effective %anuar$ "# "&& . There are several step to

take to under the check'the'box regulations. The status election is not available to entities that are incorporated under state law or to entities that that are

Partnership versus Corporation re(uired to be taxed as corporations under )ederal *aw +e.g.# certain publicl$ traded partnerships,. **C-s are not treated as being incorporated under state law# so the$ default to either partnership or .R/ status. 0lthough and **C does not t$picall$ pa$ )ederal income taxes.1 www.irs.gov

References

))).=>/a).com ))).nolo.com ))).irs.gov ?offman$ 2illiams ?.$ "avid M. Maloney$ 2illiam A ;aabe$ and 4ames c. 0o*ng. ,o*th>)ester Federal a!ation %&1. 37th ed. @ol.% A,.1.B: ,o*th> 2estern$ %&13 Print.