When determining a type of organizational structure you will adopt for your latest business venture, you will have several options to choose from. Each organizational structure entails its own levels of liability and responsibility for the owners or shareholders, as well as IRS tax requirements. Whether you are engaged in an S-Corporation, a C-Corporation, or some type of partnership, Geddes & Company, P.C. has the capabilities to help your organization with its accounting and tax preparation needs.
If you are currently engaged in, or interested in creating a new business partnership, Geddes & Company’s 25 years of experience could be an asset to your organization. Over the years we have helped many business partnerships of differing types, organize and manage their accounting practices and finances, and prepare mistake free tax filings. In order for Geddes & Company, P.C. to best help your partnership, it may first be necessary to develop a preliminary understanding of the types of partnerships available, and the associated tax benefits of each.
Types of Partnerships
When you think of great partnerships, Batman and Robin or Han Solo and Chewbacca may come to mind, however, a business partnership is slightly different. In its simplest form, a partnership is an agreement between two or more individuals, who co-own and operate a for-profit business. There are three main partnership types: A general partnership, a limited partnership, and a limited liability company or LLC.
In a general partnership, each partner maintains unlimited liability. This means that each partner involved is equally responsible for any debts or taxes accrued by the business, as well as any other legal issues which may arise.
As a safeguard against the potential for liability and legal action, some partners may pursue a limited partnership role. A limited partner has their liability limited only to the amount they are invested into the company. This allows them to be somewhat protected from debt, taxes, and legal action, however they must remain uninvolved in the company’s management.
Limited Liability Company (LLC)
The third type of partnership structure is the limited liability company of LLC. In an LLC each partner maintains limited liability and is somewhat protected from legal culpability. The LLC structure combines the limited liability of corporate ownership with the pass through income taxation of a partnership, an aspect we will review in the next section.
Pass Through Income Taxation
The appeal of forming a partnership, as opposed to other business organizational structures, is that a partnership is viewed by the IRS as a pass through entity. This means that, in terms of taxation, the partnership is merely seen as an extension of the individual owners, allowing income earned through a partnership to only be taxed once at the individual level. This differs from a corporation, where the business is taxed once at the corporate level, then distributed to shareholders where it is taxed again as individual income.
Flexibility of a Partnership
Another desirable attribute of forming a business partnership is the relative flexibility a partnership allows in terms of dispersing voting rights in the company, income, and ownership. The IRS provides that business partners can disperse rights and responsibilities in any manner they see fit, as long as it is in line with the partnership agreement in place, and provided that the dispersal is not done only to reduce one or more members tax liability.
We’re Here to Help
If you are currently engaged in a business partnership or LLC in the DC Metro area, or thinking of creating a new business partnership, Geddes & Company, P.C. is here to help. We are experts in personal and partnership taxation policy, as well as new business formation and planning. Don’t hesitate to get the professional consulting your business needs to thrive. Contact Geddes & Company, P.C. online or by phone today.