Corporation vs.

Partnership
The choice isnt 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

Life

A 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 exmembers.

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

Raising
Capital

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
cant be pledged.

Managemen
t

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 its 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 ones 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 CCorporation 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

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