Limited Partnership Limited partnership structure allows for limited capital risk, subject to restricted involvement in business operations. Tax liability flows directly to the personal return level. This structure is a hybrid, with many of the operational and tax characteristics of a limited partnership, but which allows for active owner participation in the business, with limited risk. With greater restrictions on the quantity of shareholders and tax allocations, S-Corps are currently a less fashionable vehicle than LLCs. The amount of allowable annual contribution on behalf of owners is limited in LLC and S-Corp entities.
Many new businesses generate losses in early years which are funded by entrepreneurial capital.
When the source of funding such early year losses comes from third-party loans, only proprietorship, partnership or LLC format allows for such offset benefits to an owner. However, since taxability is generally determined by the domicile of the person who ultimately receives profit from a business activity, structuring alternatives are subject to numerous sophisticated factors. There is no 'right' or 'wrong' answer to the question of which form of business ownership should be utilized. However, with proper evaluation of an owner's prioritized goals and objectives, a most appropriate structure will usually be determinable. Please call us for guidance in this area.