{"id":1690,"date":"2010-09-13T10:19:34","date_gmt":"2010-09-13T16:19:34","guid":{"rendered":"http:\/\/www.financenewmexico.org\/articles\/?p=1690"},"modified":"2013-07-02T12:23:18","modified_gmt":"2013-07-02T18:23:18","slug":"startups-should-weigh-partnership-corporate-structures","status":"publish","type":"post","link":"https:\/\/financenewmexico.org\/sandbox\/articles\/starting-or-growing-a-business\/startups-should-weigh-partnership-corporate-structures\/","title":{"rendered":"Startups Should Weigh Partnership, Corporate Structures"},"content":{"rendered":"
\"Candice

Candice Lee of Sommer, Udall, Hardwick & Hyatt, P.A.<\/p><\/div>\n

Partnerships and corporations are two common forms a startup business can take. Forming a corporation requires the business to register its articles or certificate of organization with the governing state agency.\u00a0Partnerships aren\u2019t usually required to register \u2013 though it\u2019s recommended they do \u2013 and can exist by default.<\/p>\n

A partnership consists of two or more owners operating a business.\u00a0It can be a general or a limited partnership.\u00a0Most state laws consider two or more people who own a business partners by default, but many new owners don\u2019t realize the implications of this. Because each partner is jointly and severally, or individually, liable for the partnership\u2019s obligations, the action of any partner binds the partnership, even if agreements are made without the other partners\u2019 knowledge or consent.\u00a0One partner may invest more money in the business assuming that gives her more decision-making authority, but this is not the case unless spelled out beforehand.<\/p>\n

Ignorance of the rules can devastate a new business. To avoid common pitfalls, the partners should draft (or have their attorney draft) a comprehensive partnership agreement that addresses, at a minimum, contribution amounts, allocation of expenses, distributions, management authority and limitations, dissociation, buyout rights, dispute resolution, admission of new partners and dissolution procedures.\u00a0Without this written document, the default partnership rules of the partnership\u2019s jurisdiction prevail, with results often not what the partners intended.\u00a0For tax purposes, a partnership is a flow-through entity, and all gains and losses pass through to the individual partners. <\/strong>In a limited partnership, the general partner runs the business and the limited partner receives returns on investment but makes no decisions.\u00a0 A limited partner cannot bind the partnership.<\/p>\n

With a corporate structure, equity consists of shares of stock and owners are shareholders or stockholders. Shareholders don\u2019t have personal liability for the corporation\u2019s obligations and don\u2019t run the corporation\u2019s everyday affairs; these duties fall on the officers or board of directors.\u00a0Board members are elected by shareholders, and some states allow as few as one; the board, in turn, appoints officers.<\/p>\n

Corporations are governed by bylaws that outline administrative details such as shareholder meetings, number of directors and officers and their responsibilities, indemnification and accounting procedures.\u00a0Shareholders may receive benefits, including dividends, and other preferential rights outlined in the corporate certificate or charter.<\/p>\n

Many new businesses choose not to incorporate because corporations typically are more expensive to form than partnerships and require ongoing state filings.\u00a0Corporations also are subject to \u201cdouble taxation,\u201d because the corporation\u2019s shareholders are taxed on any dividends they receive and the corporation is also taxed on its profits.\u00a0If a corporation chooses \u201cS\u201d status, it\u2019s considered a pass-through entity for tax purposes, and shareholders report all profits and losses.\u00a0Not all corporations are allowed \u201cS\u201d status, and timing requirements are stringent.\u00a0Business owners should discuss the mechanics of an \u201cS\u201d election with an attorney and accountant.<\/p>\n

Download 154_Startups Should Weigh Partnership Corporate Structures<\/a>\u00a0PDF<\/p>\n

Article 154<\/p>\n","protected":false},"excerpt":{"rendered":"

Partnerships and corporations are two common forms a startup business can take. Forming a corporation requires the business to register its articles or certificate of organization with the governing state agency. Partnerships aren\u2019t usually required to register \u2013 though it\u2019s recommended they do \u2013 and can exist by default. Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/1690"}],"collection":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/comments?post=1690"}],"version-history":[{"count":6,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/1690\/revisions"}],"predecessor-version":[{"id":1695,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/1690\/revisions\/1695"}],"wp:attachment":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/media?parent=1690"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/categories?post=1690"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/tags?post=1690"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}