When this is not the case, partnerships will not be a good option for employee ownership.Limited liability corporations (LLCs) combine elements of a partnership and an S corporation. Unlike an S corporation, however, where this must be pro-rata to ownership, in an LLC it can be divided in any way the members agree.Legally, ownership of a business is a bundle of rights to reap the benefits of that business and to make decisions about how the business is run.The basic rights in a business are the right to company income, the right to the surplus value of the company if the company is sold, the right to make decisions about how the business should run, and the right to sell all or part of the value of the business.Ownership can be shared directly with employees through partnerships or corporations, and also indirectly through tax-exempt benefit trusts.However, if the company meets certain qualifications, it can receive important tax benefits.
For example, only companies that want to share control on a one-person/one-vote basis can use cooperatives, while profit sharing plans are unwieldy mechanisms for majority employee ownership.
In choosing a plan, companies should consider set-up costs, potential tax benefits, and whether the requirements of the plan fit with the company's goals for employee ownership.
For a discussion on ESOPs, which may be viable for certain very small companies, go to our articles on that topic.
A partnership is composed of two or more partners who carry on a venture for profit.
Income is passed through to partners and taxed at personal income tax rates.