What are the advantage and disadvantage of partnership is a question I frequency get asked. The following is an attempt to answers that question.
|
Advantages of a Business Partnership
|
 |
Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
Business losses flow through to partners and may be used to offset W2 or other 1040 income.
Partnerships have the ability to make special allocations. A special allocation gives a partner more than his or her share of an item such as depreciation. Though the rules are complex, and an allocation has to have "substantial economic effect" A special allocation is a valuable planning tool for business partnerships. But it is complex, and expert advice is recommended.
|
 |
With more than one owner, the ability to raise funds may be increased.
The profits from the business flow directly through to the partners' personal tax returns.
Easily converted to a C-Corporation or S-Corporation, usually with no tax effects.
Prospective employees may be attracted to the business if given the incentive to become a partner.
|
 |
Partnership liquidations are not subject to two levels of tax, as C corporation liquidations are. No double taxation of income or gain from sale of business assets
The business usually will benefit from partners who have complementary skills.
Generally, property can be transferred into and out of a partnership tax free, while contributions to a corporation are often taxable, and property distributions from a corporation are often subject to tax.
 |
Disadvantages of a Business Partnership |
Business Partners are jointly and individually liable for the actions of the other partners. This includes business losses, legal liabilities and commitments. Each partner can legally bind not only the partnership, but all other partners as well.
Profits must be shared with others.
 |
Some employee benefits are not deductible from business income. For example, deduction for health insurance, no exclusion for $50,000 life insurance or no exclusion for employer-provided group legal services |
May be viewed as unsophisticated by vendors or customers
Cannot take maximum pension and profit sharing
Since decisions are shared, disagreements can occur.
The partnership may have a limited life; it may end upon the withdrawal or death of a partner.
On other pages of this web site you will find more partnership information that has been collected from many independent sources. Each article or news item offers a different point of view and resources and not necessay mine.
This information is for general information only.
 |
If you desire to ask a specific question about social security , feel free to contact me | |
