Benefits Of A Partnership Is The Trust Factor

1604 Words Jul 8th, 2016 7 Pages
Much like a sole proprietorships, the creation of a partnership is relatively simple and doesn’t require a large amount of legal documentation, although it is slightly more than a sole proprietorship requires. Also, a partnership is taxed as personal income for each partner, not as a separate entity. That being said, each partner can deduct the losses of the business from their own personal taxes if it is a general partnership. This could be an option for the four brothers and their cousin, Xavier. This would make sure that the business is only run by the family and it gives everyone an equal say in the decision making of the farm. It also would help that the farm would be taxed only as personal income for each of them.
Disadvantages
The
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If the company is sued, then the shareholders aren’t completely liable for all the damages as the company can be sued on its own as a separate entity. Another advantage for those that don’t hold stock in the company is that only shareholders are taxed on their income from the corporation, which comes in the form of dividends. In my current job, I send out the 1099-DIV forms for all of our shareholders as the company I currently work for is incorporated. These forms have to be filed with each shareholders tax return for the year. Another advantage to establishing a corporation is that, unlike the previous classifications given, “the business continues to exist even if a shareholder or director were to pass away,” as written in an article comparing the pros and cons of a sole proprietorship vs. a corporation (Nash, 2010).
Disadvantages
For the shareholders, the major disadvantage is the fact that they are taxed on their share of dividends received from the corporation throughout the year. The corporation itself if also taxed for the profits obtained throughout the year. For the farm, classifying it as a corporation is also an option, but might not be the best for the family business. Since the brothers want to keep the farm business in the family, they might not see the reason to elect a board of directors to run the farm for them. If the farm continues to grow to where they feel that they can’t keep up with the
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