Corporation vs. Partnership

The choice isn’t limited to either incorporating or remaining a proprietorship. For instance, there are the alternatives of operating as a partnership or a Limited Liability Company (LLC).

Following is a comparison between two forms – corporation and partnership – with respect to the factors that will be most important.

General (Non tax) Considerations

Corporation Partnership

LifeA corporation continues until dissolved by law (unless a statute limits the time).

For the term specified in the partnership agreement: death of a partner may dissolve it earlier.

Entity

Has entity separate from its stockholder. A corporation can sue and be sued, hold and deal in property.

Has no separate entity from the partners.

Liability

A stockholder has no individual liability; only his capital contribution is involved (exception: some state laws subject bank stockholders to double liability).  Shareholders may be liable if the “corporate veil” is pierced.

General partners are individually liable for all partnership obligations: limited partners are usually liable only up to the amount of their capital contributions.

Changing Ownership

Stock can ordinarily be sold or otherwise transferred at will.

Change in interests may create a new partnership. Arrangements are necessary to end liability of ex-members.

Raising Capital

A corporation raises capital by sale of new stock or bonds or other securities.

Only by loan, or by new membership, or contributions of present members, or by remaking the firm.

Making Policy

Corporate authority is centered in its board of directors, acting by majority agreement.

Unanimous agreement of partners usually required, involves problems of personality.

Credit

As separate entity, a corporation has credit possibility apart from stockholders: in close corporation. stock is available as collateral.

Depends on standing of individual partners; partnership interests usually can’t be pledged.

Management

Stockholders are not responsible: managers are employed.

By partners; they are responsible (except silent partners).

Flexibility

A corporation is limited to the powers (express and implied) in its charter from the state; may be subjected to judicial consideration.

Partners have leeway in their actions except to the extent limited by the Partnership agreement (occasionally by law).

A Company that wants to involve other investors in it’s 

shares must become incorporated and be owned by more

than one individual with the same common goal. In the case

of a partnership, the major difference lies in the liabilities of

the company. Meaning that both profits and liabilities are

shared according to the percentage of ownership agreed 

between the partners.

It is the degree of investment that determines the liability

protection for each partner. Just as a sole proprietorship

does not offer limited liability protection neither does a

partnership.

It must be noted that there are two types of partnerships,

one being a limited liability partnership and the second a

general partnership.

Dealing with a general partnership dictates limited

investment chances and no liability protection. The one

benefit to a general partnership is the ease in which it can

be started and the tax recordings and reporting are

simplified. The taxes pertain to each individual partner on

one’s own levels. There has to be a business plan where the

percentage of ownership is agreed upon and who is going to

hold what positions. In most cases, it is wise to have a

Corporate lawyer draft (the partnership agreement).

When it comes to Corporations, the tax system is much more

complicated. This is just one of the major differences when it

comes to a general partnership. With a C-Corporation, the

company pays taxes separate from the shareholders. An S-

Corporation is simply a C-Corporation that has been given

an S Corporation status upon the completion of a 2553 IRS

form. It changes the way the Corporation and its

shareholders are taxed. In this case, the shareholders can

pay taxes like as if they were a member in the partnership as

opposed to a standard corporation that is taxed on its basis.

Deciding to be a partnership or Corporation depends on

what your expectation of the business is. If you want

shareholder involvement then you are going to have to go

with the Corporation. If you want no liability protection but

favor the ease of starting the business  with a simple tax

involvement, partnership would be a better choice

Read more: The Difference Between a Corporation and a Partnership | Difference

Between | The a Corporation vs a

Partnership http://www.differencebetween.net/business/the-difference-between-a-

corporation-and-a-partnership/#ixzz3pp5uhKzQ