Partnerships and S corporations are attractive options to people who want to form a legal business structure. Each option applies to companies that have two or more owners and offer specific advantages, especially when it comes to tax planning. Upon closer glance, partnerships can offer many benefits that aren’t available with S corporations. If you’re unsure of which path is right for your business, here are a few reasons why a partnership is ideal.

How Does a Partnership Compare to an S Corp?

1. A Simpler Set-Up

It doesn’t take too much effort to establish a partnership. In general, partners will eventually have to register the business with the state and obtain the necessary licenses and permits. S corporations must file several documents, including articles of incorporation, licenses, and permits, through a more complex process.

S corporation formation also requires a considerable amount of administrative fees and usually involves help from a hired lawyer. As a result, they’re more expensive to establish than a partnership.

2. Ownership Flexibility

With a partnership, any collection of individuals can be owners. These parties can hold different percentages of ownership, allowing them to have more flexibility with income, liability, and tax matters. Even if each partner holds a different amount of shares, their input is considered equal. Additionally, S corporations must establish a board of directors that will vote on company issues, and they can have up to 100 shareholders, while some partnerships offer more freedom with this number.

3. Treatment of Taxes

A partnership is a pass-through tax entity, meaning all income and losses from the business are passed onto the partners and treated as individual taxes. While partners have to make estimated tax payments, they won’t have any income withheld.

Tax planning with an S corporation can be more complicated, and owners have a designated salary and are treated as W-2 employees. However, additional profits will pass-through to the owners and are treated as individual income.

The business structure you choose will impact your company’s financial growth and tax planning needs, and the team at Tudor Wilson & Associates CPAs, understands the importance of this decision. These professionals will review your finances, goals, and ownership to determine if a partnership, S corporation, LLC, or other structure is right for your business. Once the company is formed, they’ll provide accounting and tax planning services to ensure your assets are handled correctly. View their services online, or call the Honolulu, HI, office at (808) 592-2000 to schedule a consultation.