More &s, Fewer Incs.
All over the U.S. last week the partnership form of doing business was staging a comeback, and the corporate form was retreating. A week after investment bankers Morgan Stanley & Co. Inc. announced they would reorganize into a partnership (TIME, Dec. 8), reports from four big States showed that Morgan Stanley was going with the tide. In all cases the reason seemed to be the same: corporate stockholders are subject to double taxation, while partners' incomes are taxed only as personal incomes. Some reports:
> Despite the defense boom, 4,388 New York State corporations dissolved in 1941's first eleven months, 25% more than last year. Simultaneously, new incorporations dropped 14% to 11,915.
> In the first eleven months, Ohio--whose industries hold over $1,500,000,000 of defense orders--chalked up 343 fewer new corporations than a year ago. Meanwhile dissolutions rose 25% to 661.
> Delaware--whose easy incorporation laws snag many an out-of-state firm--has suffered too. Through Dec. 1 incorporations totaled 1,200 against 1,354 last year, 1,451 in 1939.
> With the exception of last year, Illinois incorporations are the smallest in six years.
The present 31% Federal corporation income tax is a fourth larger than last year's, more than double the 1936 rate. Partnerships, meanwhile, pay only small State licensing fees, in a few cases a nominal income tax (New York: 4 1/2%)
Andrew Carnegie started his business as a partnership; so did the Dodge Brothers. But as business units grew bigger than men, the attractions of limited liability made partnerships almost obsolete, except among lawyers, brokers, etc. Most of this year's reversions to partnerships have been small fry. Nor is General Motors likely to turn its 390,000 shareholders into partners under any kind of income tax. But at the bottom of the ladder the form of U.S. business organizations appears to be changing under the artificial stimulus of taxation.
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