Law corporation - S Corp v Partnership

In California, licensed professionals like attorneys generally cannot form a standard LLC; they must typically use a Professional Corporation (PC) or a Registered Limited Liability Partnership (LLP). **S-Corp (PC) vs. Partnership (LLP)** An **S-Corp** allows you to split income between a "reasonable salary" (subject to payroll taxes) and distributions (not subject to self-employment tax). This can result in significant tax savings if the practice is highly profitable. However, you face stricter formalities and mandatory payroll filings. A **Partnership** is more flexible regarding profit allocations and has fewer administrative burdens, but all trade or business income passed through to active partners is generally subject to self-employment tax (15.3%). **Impact of Your Partner’s Other Practice** Yes, this impacts your practice through **Controlled Group** and **Affiliated Service Group (ASG)** rules under Section 414(m). If your partner owns significant portions of both firms, the IRS may treat them as a single employer. This primarily affects retirement plan compliance (e.g., 401(k) nondiscrimination testing) and benefit limits. If one firm offers a plan, the other may be legally required to provide comparable benefits to its employees. Consult a tax professional to perform an ASG analysis before finalizing your structure.