What are the advantages and disadvantages of organizing a business as a partnership? Compare and contrast a general partnership and a limited partnership. Under what circumstances might you set up a partnership?
What are the advantages and disadvantages of organizing a business as a partnership?
There are several advantages as to why you would want to set up and operate a partnership, as your entity choice. To begin a partnership, minimal paperwork is required. With the other business forms, most notably a corporation, filings with the state for Articles of Organization are mandatory. There is also no associated fee to begin operations, as there is with a corporation. The main reason why people choose to form a partnership is for the tax advantages. A partnership is called a pass-through entity. What that means is that the income/losses flow through from the partnership's Form 1065 information return, onto the Schedule K1 of each partner's individual 1040. The partner then pays taxes on the applicable percentage of partnership income. The partnership does not actually pay income taxes.
Partnerships also have more freedom in how they run the business. Ownership remains ...
The solution provides a detailed discussion of the advantages and disadvantages of a partnership. It also compares and contrasts a general partnership with a limited partnership and discusses the circumstances where you would choose to set up a partnership.