Can a C-Corporation Be a Partner in a Partnership?

By John Green

Typically, a C corporation is allowed to be a partner in a partnership. However, as is often the case in corporate legal matters, there are significant exceptions. Some C-corps are subject to limitations on types of the partnerships they can join, and participation in a limited liability partnership is restricted to qualified individuals.

C-Corp Defined

A C-corp is an incorporated legal entity that is subject to taxation under Subchapter C of the Internal Revenue Code. A distinguishing feature of Subchapter C is double taxation, meaning that the corporation pays tax on its income and then its shareholders must also pay personal income tax on any dividends and other distributions received from the C-corp. Under the federal tax code, C-corp status is distinct from a corporation's status as a legal entity formed under state law.

Permissible Partnerships in State Law

State law defines the fundamental legal parameters of partnerships and corporate entities, and the traditional rules governing business corporations and partnerships allow such corporations to be partners. For example, the Delaware Revised Uniform Partnership Act not only defines a partnership as an association of two or more persons formed to carry on a common enterprise, but it also expressly states that the term "person" includes corporations. The act also states that corporations can serve as a general partner in a limited partnership, which is a structure in which the general partner manages the venture, while limited partners typically participate merely as investors.

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Limited Liability Partnerships

A limited liability partnership is a special type of partnership that may not have corporate members, in some states. The reason for this limitation lies in the origin of the form, which arose as a way to limit the liability exposure of partners in law firms organized as partnerships. Accordingly, a state might require that every partner of a limited liability partnership be an individual licensed in a profession such as law or accounting, a provision that intrinsically excludes corporate partners.

Professional Corporations

State laws governing business enterprise traditionally establish a legal framework for an entity known as a professional corporation, which is a corporation whose purpose is to provide professional services such as law or accounting. Consistent with this purpose, states typically place restrictions on a professional corporation's participation in partnerships and other business ventures. For example, New York prohibits a professional corporation from being a partner in any kind of partnership other than a limited liability partnership, and only if the limited liability partnership is legally allowed to practice the same licensed profession as the professional corporation.

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Can an S-corp Be a Partner in an LLP?
 

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