Partnership vs. Corporation?

Question

Marvin is planning to open a fabric dyeing business. He plans to do large scale dyeing of both fabric bolts and ready-to-wear garments. The source of business will be garment makers and cleaners. He has worked in this part of the fashion industry and knows how much capital he will need to buy the equipment required for this specialized activity.
He has some cash, and he is trying to decide whether to incorporate or to form a partnership.
What would you say to him about the major advantages and disadvantages of chartering a corporation rather than forming a partnership?

Answer 1

First of all, if he is looking to have limited liability, then he should go with a corporation. A partnership has direct exposure and tax consequences. The company pays their tax and the the shareholder pays again with their personal returns via K-1. An LLP (limited liability partnership) would be an option if he was just contributing capital.

As for the corporation side, unless there are reasons for the corporation, I would suggest an S- Corp. You can elect to change this to a C- Corp later if you choose. There are some differences in treatment from the IRS. The tax liability/responsibility is passed to the shareholders through K-1's.

Good luck and talk to a tax attorney for further clarification.

Answer 2

A corporation is a legal entity which exists in perpetuity even as workers come and go. (For instance, Coca-Cola was founded decades ago but while none of the original workers are there, the corporation exists.) Because it is a legal entity, a corporation has similar rights to that of a person. A corporation can be sued or sue others for instance. One cannot sue a worker at a corporation; one sues the corporation instead. Similar to people, corporations file their own tax returns too. Profits from a corporation are distributed to the owners which may or may not include outside shareholders. Some corporations are private. Others are public. Partnerships differ in a couple of ways. In a partnership, the partners are the sole owners of the franchise. There are no shareholders. All profits are returned to the partners who distribute them to their workers or other investors. Importantly, partnerships are not the same sort of legal entity as a corporation. Individual partners can be sued. If for example, you wanted to sue Coca-Cola you sue the corporation, not the CEO personally. If you sue a partnership, you sue the partners personally. The individual is not seperate from the partnership. Because partnerships have not sold stakes in their venture to the public, they are not as regulated nor as open as corporations. Partnerships end when the partners dissolve the partnership as opposed to living in perpetuity like a corporation.

Answer 3

I suggest that Marvin first go to score.org to get some pointers, then go to the local SCORE office to get advice. Since there are tax consequences regarding how he operates his business, irs.gov will be a good site to consult. Finally, he should consult a local attorney who specializes in formation of businesses for information (such an attorney can be found by calling the local bar association).

Good luck to him.

Answer 4

Try looking here.
http://corporatestorefront.com/corp_faq.html
I used this site to form my corporation and they were VERY helpful and cheap too!

Answer 5

tax advantages are with simple partnership.
liability protection is with corporation.
This is the quick and simple answer.CONSULT a business attorney.
Please:)