Compare and contrast the requirements for the formation and

Compare and contrast the requirements for the formation and termination of an S corporation and a partnership. What is the effect on both the business entity and its owners?

Solution

A partnership is an association of people who run a business together. An S corporation makes special election to allow the owners to take advantages of pass through taxation.

Forming a partnership does not required any paperwork, an S Cop requires complex registration requirements, the business has to register as a corporation in the state where is doing business and also has to complete IRS form 2553.

Parnerships offer more flexibility in terms of the structure of the company. S corp are more rigid, the shareholders elect a board of directors that oversees the management of the company.

Partnerships are jointly and severally liable for any debts incurred by the partnership. S Corp owners have limited liability, in other words their personal asset typically arent at risk.

In a partnership the IRS considers you are responsible for paying self employment taxes in addition to income taxes. S Corp owners must pay themeselves a reasonable salary for the work that they do for the business, this amount countas as employee income which means S Corp owner receives a W-2 form.