Partnership vs. Corporation Research Assignment Paper
Using internet websites such as https://www(dot)irs(dot)gov/ or other similar resources related to partnerships and corporate taxation, complete the following assignment:
Write a four to five (4-5) page paper in which you:
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.
Explain at least two (2) reasons why a business owner might opt to become a partnership over a corporation. Provide support for your rationale.
Imagine that you are a partner in a LLC. Justify why you elected to become a partnership as opposed to a corporation. Indicate tax rules that influenced your decision.
Imagine that you are a consultant and make the recommendation that the most advantageous business structure is a C-corporation. Justify why you would recommend a Corporation over a Partnership. Indicate tax rules that influenced your decision.
Analyze what a business owner must consider when deciding what type of entity is best for the goals and vision of the business. Provide at least two (2) examples of research the owner must perform to ensure the proper election is made. Provide support for your rationale.
Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. Note: Please refer to the APA template in the course shell for more information on APA style.
Include a cover page containing the title of the assignment, the student's name, the professor's name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Examine the tax rules that are unique to corporations, and the basic concerns relevant to shareholders and the corporation.
Examine the tax rules and treatment related to partnerships.
Use technology and information resources to research issues in corporate federal taxation.
Write clearly and concisely about corporate federal taxation using proper writing mechanics.
Partnership vs. Corporation
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Partnership vs. Corporation
Question 1
In forming a corporation, shareholders have monetary transactions, share property and the capital's stock. For federal tax purposes, companies are regarded as a separate legal entity (US Department of Treasury, 2017). This means that business is treated as a person. Corporate taxes are deducted both from the profit earned and upon the distribution of dividends to its shareholders. This is commonly known as double taxation. Upon distributing dividends, it is not exempt from tax reducing the amount to be shared. The shareholders can therefore not hold the company liable or any losses on their dividends and bonuses. A corporation can also take special deductions that separate it from a sole proprietorship. This means that all the losses and profits of the corporation are born by the shareholders. Their dividends depend on how well the company performed in the year (Devereux, M. 2013).
A partnership on the hand is taxed differently. Partnerships are relationships between two or more people who come together and join resources to carry out a trade or business. Each of the partners makes financial contributions, labor, skill and property and settle down on a ration in which they expect to share the losses and profits of the business. A partnership is required to file an annual return to tax file stating their expenditure, profits, deductions and losses. However, a partnership is exempt from paying tax. Any profits and losses recorded are passed through to the partners meaning that partners bear the burden as individuals. Each partner includes his share of the losses, gains, and deductions in their annual report. In partnerships, therefore, it means that everything is pushed to the partner's individual statements (Burke, K. 2016).
Question 2
Various motivating factors would drive someone to opt for a partnership other than a corporation. The main reason has been that partnerships allow partners a wide pull of resources. There can be as many partners as they so deem that can come together and contribute to the partnership. Partners can source for resources based on capital, labor or skills. As the adage goes, two heads are better than one. They can also have grants and donations to mobilize the resources unlike in a corporation where the source of capital is primarily shares. When stock market drops, the corporation has little or no options for financial resources.
Partnerships are easy to start and establish as the start-up costs are lower than those of corporations. To form a partnership requires the partners to have a name for the business, register it and sign a written partnership agreement (Burke, K. (2016). This is a paramount document that outlines the terms and responsibilities of partners and also includes the contributions of the partners and how they will allocate profits and losses. With a partnership agreement, the business is registered and ready to begin trading. Forming a corporation requires so many legal projections that may hinder people from starting a corporation. To form a corporation, a business owner first needs a list of directors and company secretaries filed to the registrar of enterprises (Burke, K. (2016). The company name must appear in the articles of association and cannot be similar to that of an existing company. The rules governing the establishment of a corporation are so tight that business owners will more likely than not opt for partnerships (Burke, K. 2016).
A business owner might also opt for partnership due to the ease of changing legal structure when the circumstances change. A partnership can be modified to a limited liability company or back to sole proprietorshi...