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Tax Blog

Importance of Picking Business Structures Pt. 2

This is the second part of our series blog on business structures. Previously, we examined the lose structure of a sole-proprietorship, the most common form of business within the United States. The sole-proprietorship offers ease of starting up, pass-through income and deduct; however, also represents unlimited liability for the owner. The next type of business structure we will examine is the partnership.

Partnerships are another common type of business structure. Partnerships are typically a meeting of two or more individuals with a common goal or business idea. There are several pros when considering a partnership including:

  • Extra help between owners

  • Additional know how and perhaps different specialties

  • More startup capital between more people

  • Different types of partnerships (Limited Liability Partnerships for example)

  • 199A deduction (pass-through entity)

Conversely, there are also some cons to forming a partnership, such as:

  • Less individuality, as partners may not agree on direction of business

  • Conflict of interests

  • Split profits

  • Likely liability passes to owners

Some of these issues can be contracted around, for instance a partnership may have a silent partner who only supplies the financials and allows the other to manage the business. Furthermore, if your state allows for LLPs then the financial partner may be able to create a shield of liability, while the management assumes more. These are all possibilities to consider with your business attorney or specialist as you create your start-up. If you have questions about business structure, contact us at the Center for Financial, Legal & Tax Planning, Inc.

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