Dental Corporation
vs. Dental Partnership
Comparison
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Corporation vs Partnership |
Corporation - Advantages *
Comparison of C Corporation vs S Corporation
Top Ten Incorporation Mistakes
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Provides limited liability for owners (partnerships do not, although corporate partners provide limited liability for their shareholders). |
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May elect a non-calendar fiscal year, providing opportunities for shareholders to accelerate or delay recognition of income. |
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May obtain significant tax benefits not available to partnership (S corporation and C corporation have different benefits; see C vs S Corporations for details). |
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No income tax owed by shareholders of insolvent corporation for "cancellation of debt" (solvent partnership members of insolvent partnerships are generally taxed on the amount of bad debt cancelled). |
Partnership - Advantages*
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May not be subject to annual state corporate/franchise tax; corporate partners must pay these taxes. |
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Less annual paperwork (e.g., no annual minutes required). |
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Far more freedom to creatively arrange different capital contributions, profit distributions, loss allocations, preferential payments and voting arrangements between owners. |
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Far more freedom to creatively arrange different benefits and tax deductions for corporate partners. |
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Fewer limitations and burdens on trust ownership of partnership (dangers exist for trust ownership of S corporation). |
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California: Not subject to annual Franchise Tax ($800 minimum per year is payable by corporations, including any corporate partner), and no annual Statement of Information required. |
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Tennessee: Not subject to the annual Franchise Tax (.25% of the greater of net worth or real and tangible property in Tennessee, with minimum $100 tax) or Excise Tax (6.5% on all Tennessee taxable income); corporate and LLC partners must pay these taxes. |
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Texas: Not subject to the annual Franchise Tax (also known as the Margin Tax) only if owned entirely by natural persons. Partnerships with a corporate, partnership or LLC partner must pay these taxes, as do each corporation, nonqualified partnership and LLC; the tax rate (for dental practices) is 1% of the lesser of (i) revenue minus employee compensation/benefits, or (ii) 70% of revenue, discounted at various percentages from $300,000 up to $900,000. |
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* This tax comparison of corporations and partnerships is intended to address a typical startup of a small business organization, excluding state-specific issues. This comparison is not exhaustive, nor does it apply necessarily in each and every circumstance. The contents of this website are not intended to be, nor shall they be considered, legal advice or legal opinions. Please see your CPA and/or attorney for more thorough coverage of the subject. CAVEAT: Pursuant to applicable federal regulations, we are required to inform you that any advice contained in this communication is not intended to be used nor can it be used for purposes of (1) avoiding tax penalties or (2) promoting, marketing or recommending to another party any transaction or matter addressed above. |
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