Cheapest partnership structure

April 15, 2008 2:26 PM

I am looking to form a partnership, Company A, with someone to buy a franchise. A couple of points to note are: This type of franchise only exists in order to each partner to do business (i.e. do deals) within the franchise territory.

We will split , legal, professional, office costs.
We would like to have it structured so that both partners Company B and Company C can have their separate DBA's bill Company A.
We will do so that we can both structure defined benefits plans within Company B and Company C.

Is this a good solution? The main issue with all the different companies is the defined benefit plan. The reason for separate companies and plans is that one partner is making significantly more in commissions and thus will be contributing far more into his defined benefit plan.

posted by thinktwice to Work & Money (1 answer total)

I think whatever savings the wealthier partner potentially gains by some greater pension plan shielding, is bound to be eaten up by the higher taxes a more complicated corporate structure creates. Essentially, having Companies B and C means Company A cannot be an "S" corporation under Federal rules, or an LLC under most state rules, which means you're going to get hit for corporate taxes on Company A earnings, and then again on Company B and Company C earnings, before you see much trickle through as commissions, much less pension benefit shelter savings. And it's an awfully complicated structure for small companies to support, particularly as to insurance, taxes, and succession planning.

Talk to an attorney and an accountant in your area; but I feel sure they are going to push you towards an LLC or subchapter "S" form of organization, and simpler types of pension programs.
posted by paulsc at 9:24 AM on May 9, 2008