Tax costs, liability exposure, and the practical convenience of various forms of business are the points that most clients raise when they consider setting up a business organization.
Different types of ventures require different organizational means: the sole proprietorship, the general partnership, the limited partnership, the limited liability company (LLC) and the corporate form are all possibilities. Even within the corporate structure, many different kinds of operating procedures are possible.
A new and risky business, or one in which losses are sustained to build capital value, frequently are operated in an unincorporated form, or partnership form, so that any losses may be applied against income and offset with tax savings.
A form of incorporated “partnership”, known as an “S Corporation,” may also be utilized. Subchapter S status avoids income tax at the corporate level, and corporate operating losses can be claimed by the shareholders. Where the venture is speculative, and you do not want the risks associated with an unincorporated form, IRC Section 1244 stock may be issued.
A comparison is provided here between the corporation and partnership forms with respect to the factors that will be most important.
Please see also the comparison between the corporation and LLC forms.
Tax considerations play a large role in choice of business organization type. For more information see Tax Considerations.
These tax questions should be discussed with you CPA or tax advisor.
For additional information, please take a look at some of the following posts on related topics: