Question

Compare and contrast the tax rules and treatment applicable to corporations and partnerships. Indicate the major way in which the tax treatment affects the shareholders or partners. Explain at least two (2) reasons why a business owner might opt to become a partnership over a corporation. Provide support for your rationale. Imagine that you are a consultant and make the recommendation that the most advantageous business structure is a C-corporation. Justify why you would recommend a Corporation over a Partnership. Indicate tax rules that influenced your decision. Analyze what a business owner must consider when deciding what type of entity is best for the goals and vision of the business. Provide at least two (2) examples of research the owner must perform to ensure the proper election is made. Provide support for your rationale. Use at least two (2) quality academic resources in this assignment.

Answer 1

There are number of differences in tax treatments where it comes to various aspects of business between corporations and partnerships. A corporation has separate legal status of its own and must pay taxes on its profit earned from business. Whereas partnership does not have any corporate veil and the partners are not liable to pay taxes on the profits earned by a partnership. Thus, often shareholders prefer to move to a partnership business from corporations as the income tax liability of a partnership firm is much less compared to the tax liability of corporations. Apart from that a business owner often will find it difficult to comply with the complex provisions of income taxes applicable to the corporations thus, would prefer a relatively easy to comply partnership firm over and above corporations (Scarborough 2016).

However, despite the fact that a partnership firm is not required to pay on the amount of profit earned by the partnership whereas a corporation must pay taxes on its profit still an expert recommend a corporation over a partnership. The reasons for such recommendation are enumerated below:

1. Corporations have separate legal identity that protects the owners from unlimited liability.
2. Partners of a partnership business on other hand are personally liable for the partnership business.
3. A corporation is capable of filing a case on any person by itself with the help of its human agencies however a partnership cannot do that as it has no separate legal entity.     
4. The options available to generate capital for business are numbers for corporations whereas the same is limited for a partnership business.
5. Expansion of business is possible in the form corporations only and not in partnership (Allen 2017).

References:

Allen, W.T., 2017. Our schizophrenic conception of the business corporation. In Corporate Governance (pp. 79-99). Gower.

Scarborough, N.M., 2016. Essentials of entrepreneurship and small business management. Pearson.