Difference between Corporation and Partnership

 

Key difference: A corporation is a separate legal entity from its owners. A partnership is a business entity with individuals who share the risk and benefits of business.

 

A corporation and a partnership are both entities formed with the intention of doing business. However, they have very different structures. A partnership is formed when two or more individuals or businesses come together to do business for profit, and share the ownership, liability and profits of the business.

 

A corporation, on the other hand, is a separate legal entity, which is owned by shareholders. It has legal rights and liabilities, and may work for profit or not for profit. In case of profit, the profit is first reinvested in the corporation and then among the stockholders in the form of dividends, as decided by the president of the corporation.

 

The profits in a partnership may be greater, as there are usually less owners than a corporation. However, a partnership has limited investment chances and no liability protections, which means that if anything goes wrong, the owners are held directly responsible. This is not the case in a corporation, as the corporation is a separate legal entity, the blame does not fall on the stockholders, but on the corporation itself and possibly on the board of directors.

 

Also, a general partnership is easier to set up with limited paperwork, legal proceedings and tax obligations. In regard to this, the setup and operation of a corporation is much more complicated, with much more intricate legal proceedings and taxations. Also, in some areas, a corporation may have to submit paperwork with the government on a yearly basis, such meeting minutes. Additional differences include:

 

 

 

Corporation

Partnership

Definition

A legal entity which is separate from its owners.

A business entity with individuals who share the risk and benefits of business.

Ownership

Stockholders

Partners

Formed

Formed under operational state laws with Articles of Incorporation.

An agreement among the members.

Types

subchapter-s corporation, professional corporation

general partnership, limited partnership, limited liability partnerships

Management

Run by a board of directors

Run by the partners

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.

Partnerships have to adhere to a partnership agreement. More flexible, less structured. Each part of the business has to be individually transferred or sold.

Raising money

By sale of financial instruments like stocks and bonds.

From current members, getting new members, a loan

Liability

The stockholders are not held responsible in case of a fault, the corporation is.

The partners share the liability, and are directly responsible in case of fault.

Dissolution

Stockholder approval, government approval

Decision of the partners

 

 

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Image Courtesy: internationalbudget.org

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