Distinguishing Partnership from a Corporation

Definition
Partnership - by the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves. (Art. 1767, Civil Code)
Corporation - an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to its
existence. (Sec.2, Corporation Code

Differences
 Manner of Creation

A partnership is created by mere agreement of the partners while a corporation is

created by operation of law.

 Right of Succession

In a partnership, there is no right of succession; in a corporation, there is a right of

succession. A corporation has the capacity if continued existence regardless of death,
withdrawal, insolvency or incapacity of its directors or stockholders.

 Structure

Corporations and partnerships differ in their structures, with corporations being

more complex and including more people in the decision-making process. A corporation is
an independent legal entity owned by shareholders (5-15 persons/founders), in which the
shareholders decide on how the company is run and who manages it. A partnership is a
business in which two or more individuals share ownership. In general partnerships, all
management duties, expenses, liability and profits are shared between two or more owners.
In limited partnerships, general partners share ownership responsibilities and limited partners
serve only as investors.

 Startup Costs

Corporations are more expensive and complicated to form than partnerships.

Forming a corporation includes a lot of administrative fees, and complex tax and legal
requirements. Corporations must file articles of incorporation, and obtain state and local
licenses and permits. Corporations often hire lawyers for help with the process. It is advisable
that only established, large companies with multiple employees start corporations.
Partnerships are less costly and simpler to form. Partners must register the business with the
government and obtain local business licenses and permits.

 Liability

In partnerships, the general partners are held liable for all company debts and legal
responsibilities to the extent of their personal assets. General partners' assets may be taken to
pay company debts. Corporations, on the other hand, do not hold individuals liable for the
company's debt or legal obligations. The corporation is considered a separate entity and
therefore the corporation itself is responsible for assuming all debts and legal fees, and the
shareholders are liable only to the extent of their interest or investment in the corporation so
they are not at risk of losing personal assets.

 Commencement of Juridical Personality

In a partnership, juridical personality commences from the execution of the articles of

partnership; in a corporation, from the issuance of certificate of incorporation by the
Securities and Exchange Commission.

 Management

Partnerships have simpler management structures than corporations. In a partnership,

all general partners decide how the company is run. General partners often assume
management responsibilities or share in the decision of hiring and monitoring managers.
Corporations are governed by shareholders, who conduct regular meetings to determine
company management and policies. The management is vested on the Board of Directors.
  Summary
Corporation Partnership
Definition A legal entity which is
separate from its owners.
Ownership Stockholders
Formed Formed under
operational laws with
Articles of Incorporation.
Types subchapter-s corporation,
professional corporation
Management Run by a board of directors
Structure Members of a corporation
have to act in accordance
with the corporation's
charter. More structured,
less flexible. Easier to
transfer ownership of part
of a corporation.
Raising money By sale of financial
instruments like stocks and
bonds.
Liability The stockholders are not
held responsible in case of
a fault, the corporation is.
Dissolution Stockholder approval,
government approval
A business entity with
individuals who share the
risk and benefits of
business.
Partners
An agreement among the
members.
general partnership,
limited partnership,
limited liability
partnerships
Run by the partners
Partnerships have to
adhere to a partnership
agreement. More flexible,
less structured. Each part
of the business has to be
individually transferred or
sold.
From current members,
getting new members, a
loan
The partners share the
liability, and are directly
responsible in case of
fault.
Decision of the partners