Entity Structuring for Tax Savings Part 2

<h2> General Partnership <h2>

<p> A general partnership is an association of two or more people with the purpose of making a profit. You do not have to have a written agreement to form one and much like a sole proprietorship, no formal filing is required. It is also the riskiest form of business there is. This is because with a general partnership, you are responsible not only for your own mistakes and problems but you are also responsible for the mistakes and problems of your partner(s). Every time you add a partner, you increase the chance of a problem exponentially. <p>

<p> General Partnerships have a concept called joint and several liabilities. This means that any member of the general partnership can be held liable separately or jointly, along with another partner. The bad guys get to choose who they can enforce a judgment against, based on who has the deepest pockets. As a practical matter, you may have done nothing wrong, yet you are dragged into a lawsuit simply because you have more assets for the bad guys to attach. Once again, I suggest you NEVER do business as a general partnership. <p>

<h2> Corporations <h2>

<p> A corporation is a separate legal entity that is governed by state law. It operates through its bylaws as well as through resolutions written and adopted by its shareholders and directors. It must not function as the alter-ego of its stockholders. Corporate formalities must be maintained in order to keep the corporation a separate legal entity. The state of incorporation has its own statutes, rules, and regulations from which a corporation operates. We will examine the difference between “C” corporations and “S” corporations in a later section, as well as ideas about choosing the state of incorporation. <p>

<p> Sincerely, <br>

Drew Miles, The Tax Saving Attorney <p>

<p> To learn more about developing business tax strategies, please see our Small Business Taxes page. <p>