Corporation Advantages *
- Provides limited liability for the organization. Partnerships do not have limited liability, although corporate partners of a partnership themselves have limited liability.
- C-corporations, and occasionally S-corporations, may elect a non-calendar fiscal year, providing opportunities for shareholders to accelerate or delay recognition of income.
- May obtain significant tax benefits not available to partnerships, although those benefits are regained for corporate partners of a partnership.
- 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 *
- Less annual paperwork (no annual minutes required).
- Far more freedom to creatively arrange different capital contributions, profit distributions, loss allocations, preferential payments and voting arrangements between owners.
- Far more freedom to creatively arrange different benefits and tax deductions for corporate partners.
- Fewer limitations and burdens on trust ownership of partnership (dangers exist for certain types of trust ownership of S corporations).
- 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.