Part I
(a)
To: Mindy Feldkamp, Oscar Lopez, and Lori Melton

From: Judy Collier

Date: 12/18/2010

Re: Analysis of Partnership vs. Corporate Form of Business Organization

I have examined your situation regarding the establishment of your business. Before discussing my recommendations, I would like to briefly review the advantages and disadvantages of partnerships and corporations.

The primary advantages of a partnership over a corporation are:

1. Partnerships are more easily formed than corporations. Partnerships can be formed simply by the voluntary agreement of two or more individuals. Forming a corporation requires preparing and filing documents with governmental agencies, paying incorporation fees, etc.

2. Income from a partnership is subject to less tax than income from a corporation. Even though partnerships are required to file information tax returns (returns that show financial information, but do not require any payment of taxes), they are not considered taxable entities. A partner’s share of partnership income is taxed only on the partner’s personal income tax return. Corporations are taxable entities and pay taxes on corporate income. In addition, any dividends distributed by corporations to individuals are subject to personal income tax on the personal income tax return. This is known as double taxation.

3. Partnerships have more flexibility in decision making. The decisionmaking process used in a partnership is determined by the partners, whereas some decisions required in corporations must follow formal procedures described in the bylaws of the corporation.

The primary advantages of a corporation over a partnership are:

1. Mutual agency does not exist in a corporation. This means that the owners of a corporation (stockholders) do not have the power to bind the corporation beyond their authority. For example, a