Eli5 what is the tax advantage in a General Partnership business organization?
In: Other
The answer is going to be very state specific, but at a US Federal level businesses as partnerships do not have to pay income tax; each partner files the profits or losses of the business on his or her own personal income tax return. This way the business does not get taxed separately and owners are not subject to double-taxation on profits (unlike a C corporation).
That said, you don’t tend to see them all that often anymore, because LLPs and LLCs confer this same tax advantage while still providing some liability protection (which partnerships lack).
You never, never, never, ever want to have a legal partnership. Just never. Get a corporation.
If you have a partnership, and you have $10 million in a bank account, the partner can take the $10 million out and just keep it, and you can’t do anything about it.
However, in a corporation, there are specific laws set up in each state. You can’t do that.
In addition to a lot of other benefits. Like limited liability. If your partner is an idiot and f-cks up, you will be personally liable – your home, your car, your future income can be garnished, retirement funds, all kinds of ugly things.
This cannot happen in corporations (unless there is illegal stuff, malfeasance (doing bad things with a company), piercing the corporate veil).
So splurge the $400 or $800 to get a corporations. There are a lot of incorporation businesses that will do it for you in any state, for $50 if you take the least expensive choice ($50 is for the companies profit and does not include the state fees, if any – those state fees are in the amount of whatever your state charges.).
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