Any business that does not register as a particular business form is “unincorporated”. Each business form has significant pros and cons and differences in how they report income and expenses, and choosing a business form is not to be done lightly.
A partnership is simply two or more people who enter into business together. It can be you and your buddy mowing lawns and doing landscaping, or it can be you and your wife, or it could be three or more people. Partnerships are not required to form any specific business structure. That would be an unincorporated partnership. Unincorporated partnerships file a form 1065 tax return, unless the only two partners are spouses, in which case they can file as a qualified joint venture.
When two or more people go into business together, they don’t have to incorporate, but there are several legal structures that exist that may offer the business owners additional protections. These business forms include the LLC (limited liability company), S-corporation, C-corporation, and maybe a few others. I am not an expert on the different corporate or business forms and you would really need professional legal advice to discuss the pros and cons of each.
Because a single member LLC is treated by the IRS as a disregarded entity, and the owner files the schedule C as if they were an unincorporated sole proprietorship, people tend to assume they are the same thing, but they are really not. An LLC is not something you can put on and take off at your convenience like a jacket, you really should have legal and tax advice before you choose the form of your business.
The bottom line in your situation is that you have several options. You can add your wife to the LLC as a member, you could dissolve the LLC and operate as a qualified joint venture, or you could pay your wife as an independent contractor. Each of these has pros and cons, and you will file your taxes differently in each case, and you may want to discuss your situation with a professional.
