What is a flowthrough entity What advantages do flowthrough

What is a flow-through entity? What advantages do flow-through entities have over a regular corporation? Compare the tax characteristics of an S corporation and a partnership.

Solution

Flow through entity

A flow through entity is a business entity that passes on the revenue to the business/owners. A flow through entity is often created in order to avoid the double taxation policies. In case of flow through entity only the business/owners are taxed on the revenue earned by them.

Advantages

Following are some of the advantages of flow through entity:

Difference between partnership and corporation

The major differences between a partnership and a corporation are on the basis of the taxes that are being charged, the liability of the owners, the way of raising funds and the modes of exiting the business.

Partnerships are more flexible as compared to corporations but the owners in a partnership firms can be held legally liable for any misconduct. On the other hand the corporations protect the owners from being legally liable.

At the same time it is easier for corporations to raise capital as compared to partnership firms. The corporations might be required to file a lot of paperwork in case the company wants to raise money from the market.