There are some major differences that must be mentioned when deciding whether to become a corporation vs partnership. The liability of the partners/shareholders and the various tax comparisons are all factors that one should look into when starting a business in California. Fortunately, there is a way to incorporate in California and take the best of both entities.

Help Choosing a Corporation Vs Partnership
Forming an S Corporation gives the shareholders the same level of limited liability as a C Corporation in addition to the huge tax savings of a partnership. All of the income from a partnership flows through directly to the members. The percentage of income is stated in the articles of incorporation.

Similarly, the shareholders of an S Corporation pay tax on the corporate income at the personal level. A normal C Corporation is required to pay double tax in order to get the income to flow through to the shareholders. This is an important factor that all tax attorneys and accountants need to consider when advising their clients how to proceed.

The tax laws of 2003 have helped to make choosing a corporation vs partnership more difficult than before. The tax rates on dividends have decreased immensely which makes the double taxation less of a burden. Nonetheless, you are better off to incorporate a small business as a corporation rather than become some form of a partnership.