Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations
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Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations

Edited by Robert W. Hillman and Mark J. Loewenstein

Presenting alternatives to the corporate form of organization, the Handbook explores partnerships, LLCs, business trusts and other alternatives. Specially commissioned chapters by leading scholars in the field examine issues such as: fiduciary duties, agency principles, contractual freedom, tax treatment, the special circumstances of law firms, and dissolution. While much of the emphasis is on US law, a number of chapters include treatments of Japan, the UK, Russia, China, Taiwan, India and Brazil.
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Chapter 10: Tax aspects of partnerships, LLCs, and alternative forms of business organizations

Bradley T. Borden


A driving force behind the growing popularity of partnerships, limited liability companies (LLCs), and other alternative forms of organizations in the United States is the preferential tax treatment such entities receive when compared to corporations. As a general matter, corporations are subject to an entity-level tax, and distributions from corporations to shareholders are also subject to tax. Consequently, corporate income is taxed twice in the United States. In contrast, the income of partnerships, LLCs, and other alternative forms of organizations generally is not subject to an entity-level tax in the United States. Instead, all the income of such entities flows through to the owners of the entities, and the owners report their respective shares of a flow-through entity’s income on their respective tax returns. Additionally, partnership tax law (the tax regime most commonly associated with partnerships and LLCs) grants the members of such entities significant flexibility, which provides tax advantages that exceed mere avoidance of double taxation. The presence of corporate double tax and the tax flexibility granted to partnerships and LLCs combine to create a sophisticated flow-through partnership tax regime in the United States that is unrivaled in other countries that also have dual tax regimes for corporations and other entities. Flow-through tax also exists beyond the confines of partnership tax in several niche areas of the law.

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