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Faizan
Each state has the authority to create its own laws on the creation of business entities such as corporations, limited liability companies and partnerships. However, for purposes of creating partnerships, a majority of the states have adopted the federal Uniform Partnership Act in its entirety or with minor modifications. As a result, most states allow a corporation to be a partner in a partnership.
Formation
The Uniform Partnership Act provides a broad definition of a partnership as two or more persons who conduct a business for profit as co-owners. Corporations and LLCs require express consent by all parties to create the business entity. However, a partnership can exist as a result of an oral agreement between two parties who plan to pursue a business venture together.
The partnership can even exist without express agreement to create it. For example, if two people decide to open a restaurant and fail to create any other business entity in their state, the joint venture will be subject to partnership rules by default.
Considerations
Delaware is just one state that adopts the provisions of the Uniform Partnership Act and allows a corporation to serve as a partner in a partnership. At first glance, it may appear that only individuals can become partners since the rules require two or more "persons." However, both the partnership act and the Delaware Act include various types of business entities, including corporations, in the definition of "person."
Benefits
Partnerships are beneficial for joint ventures between a corporation and another business entity or individual because it allows the corporation to separate its other corporate operations from the partnership activities. It also allows the corporation to create and dissolve the venture without the formalities most states require.
The lack of formal requirements allows the corporation to dissolve a partnership as quickly as it enters into it. For example, if the venture proves unprofitable, the corporation can withdraw from the partnership voluntarily without any interference to its corporate business.
Taxation
Federal income tax laws impose corporate and partnership taxes on a corporation that is a partner in a partnership. The partnership must file a yearly informational tax return, using Form 1065, but it doesn’t pay income tax. Instead, the partners receive a Schedule K-1 that reports their share of partnership's income and deductions. As a result, the corporation, which is a separate taxpayer, must report the partnership income, or loss, with the income it earns from other corporate activities and reports on a corporate tax return.
Formation
The Uniform Partnership Act provides a broad definition of a partnership as two or more persons who conduct a business for profit as co-owners. Corporations and LLCs require express consent by all parties to create the business entity. However, a partnership can exist as a result of an oral agreement between two parties who plan to pursue a business venture together.
The partnership can even exist without express agreement to create it. For example, if two people decide to open a restaurant and fail to create any other business entity in their state, the joint venture will be subject to partnership rules by default.
Considerations
Delaware is just one state that adopts the provisions of the Uniform Partnership Act and allows a corporation to serve as a partner in a partnership. At first glance, it may appear that only individuals can become partners since the rules require two or more "persons." However, both the partnership act and the Delaware Act include various types of business entities, including corporations, in the definition of "person."
Benefits
Partnerships are beneficial for joint ventures between a corporation and another business entity or individual because it allows the corporation to separate its other corporate operations from the partnership activities. It also allows the corporation to create and dissolve the venture without the formalities most states require.
The lack of formal requirements allows the corporation to dissolve a partnership as quickly as it enters into it. For example, if the venture proves unprofitable, the corporation can withdraw from the partnership voluntarily without any interference to its corporate business.
Taxation
Federal income tax laws impose corporate and partnership taxes on a corporation that is a partner in a partnership. The partnership must file a yearly informational tax return, using Form 1065, but it doesn’t pay income tax. Instead, the partners receive a Schedule K-1 that reports their share of partnership's income and deductions. As a result, the corporation, which is a separate taxpayer, must report the partnership income, or loss, with the income it earns from other corporate activities and reports on a corporate tax return.
Posted in: Business Laws
