What is a major advantage of partnerships compared to corporations?

The major advantage of partnerships compared to corporations is pass-through taxation. In a partnership, the business income is reported directly on the partners' tax returns, which means that the income is taxed at the individual partner level rather than at the corporate level. This avoids the double taxation that can occur in corporations, where the company's profits are taxed and then any dividends distributed to shareholders are taxed again as personal income.

As a result, partnerships can provide a tax benefit for their partners, allowing profits to be taxed solely at the individual tax rates, which can often lead to a lower overall tax burden for the partners compared to corporate earnings that face taxation at both the corporate and personal levels. This structure can be particularly advantageous for small businesses and service-oriented firms where profits are typically passed through to owners who actively manage and participate in the business.