General Partnership Case Study

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George is not to contribute anything but will provide his services and will get profit share of 15%. For him, General Partnership will be appropriate as he will be a general partner and therefore will be actively involved in the management of the business. This is because he is offering personal services to the business and hence he can properly manage the business. He can easily form a general partnership since there are no filings necessary and also no paperwork is required during formation.
Kim will contribute $150,000 cash and will get a 25% share. In this case S-Corporation will be better for her as Kim will be entitled to vote for the board of directors using her 25% ownership. This will ensure that she vote for a responsible board since …show more content…

(v) Federal Income Tax advantages and disadvantages
The income of the partnership is divided between the partners according to an agreement between them in their profit sharing ratio after deducting partner’s salary and interest on capital. There is pass through taxation, which means that there is no income tax on partnership firm but income tax is charged in an individual capacity on total share including salary and interest received by each partner.
The disadvantage associated with partnership is that sometimes business grows to large and share received by partner is less and if his other income is higher, partnership share received is also taxed at higher rates of federal income tax.
(b) Limited liability partnership
(i) Ease of formation
It is also very easy to form the limited liability partnership. It can be created by forming a partnership deed and is least expensive as well. It can also operate in multi states without getting a new permit for each state. A limited liability partnership can be formed with agreement and all or some partners may have limited …show more content…

There is pass through taxation. It means there is no income tax on partnership firm but income tax is charged in an individual capacity on total share including salary and interest received by each partner. The disadvantage associated with limited liability partnership is that LLC owners must pay taxes on their distributive share of the profit of the company, even if they have not received a distribution of those profits and sometimes business grows to large and share received by partner is less and if his other income is higher, partnership share received is also taxed at higher rates of federal income

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