Corp. vs. Partnership

Corporation Advantages *

blueball  Provides limited liability for the organization. Partnerships do not have limited liability, although
     corporate partners of a partnership themselves have limited liability.

blueball  C-corporations, and occasionally S-corporations, may elect a non-calendar fiscal year,
     providing opportunities for shareholders to accelerate or delay recognition of income.

blueball  May obtain significant tax benefits not available to partnerships, although those benefits are
     regained for corporate partners of a partnership.

blueball  No income tax owed by shareholders of insolvent corporation for cancellation of debt. Solvent
     partnership members of insolvent partnerships generally are taxed on the amount of bad debt
     cancelled.

Partnership Advantages *

blueball  Less annual paperwork (no annual minutes required).

blueball  Far more freedom to creatively arrange different capital contributions, profit distributions, loss
     allocations, preferential payments and voting arrangements between owners.

blueball  Far more freedom to creatively arrange different benefits and tax deductions for corporate
     partners.

blueball  Fewer limitations and burdens on trust ownership of partnership (dangers exist for certain types
     of trust ownership of S corporations).

blueball  Not itself subject to annual California Franchise Tax (1.5% or $800 minimum per year is
     payable by corporations, including any corporate partner), and no annual Statement of
     Information is required.

* This tax comparison of corporations and partnerships is intended to address a typical startup of a small business organization, excluding state-specific issues. This comparison is not exhaustive, nor does it apply necessarily in each and every circumstance. The contents of this website are not intended to be, nor shall they be considered, legal advice or legal opinions. Please see your CPA and/or attorney for more thorough coverage of the subject.

Caveat:

Pursuant to applicable federal regulations, we are required to inform you that any advice contained in this communication is not intended to be used nor can it be used for purposes of (1) avoiding tax penalties or (2) promoting, marketing or recommending to another party any transaction or matter addressed above.