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The Difference Between a Corporation and a Partnership

shaking-handsA 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.

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