How to plan the private economy through taxation is undoubtedly the most active force in the development of China's national economy. With the active support and policy encouragement of the state, the organizational forms of private enterprises are also diversified, and different organizational forms can be selected according to their different business and development needs. In this case, the partnership or limited liability company that Mr. Li and his friends want to establish belongs to the two most common types.

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Advantages and disadvantages of different organizational forms of private enterprises

When choosing to establish a partnership or a limited liability company, we should not only look at the tax differences between them, but also comprehensively consider the risks, management difficulties and development prospects.

From the risk point of view, the general partner bears unlimited joint liability, which bears more risks than the shareholders of a limited liability company, but at the same time protects the interests of creditors, and the partnership enterprise is more likely to gain the trust of the counterparty and obtain more business opportunities.

From the perspective of business decision-making, the number of partners is usually small, and each partner has the right to participate in the operation and management of the enterprise, and has a specific personal trust relationship, which has greater autonomy and flexibility in operation and management. However, the corporate governance structure of limited companies (especially joint-stock companies) is relatively perfect, and the capital connection between shareholders and the separation of corporate ownership and management rights provide investors with a better choice to effectively control enterprises and related risks.

From the tax point of view, a partnership enterprise takes each partner as the taxpayer, and only needs to pay personal income tax, not corporate income tax, while a limited company has to pay corporate income tax. Shareholders of a limited company have to pay individual income tax separately after distributing the after-tax profits. Therefore, partnership enterprises have obvious advantages in taxation.