What’s the Difference Between Partnership and Corporation?

partnership and corporation

The choice between partnership and corporation is one that will have ramifications for your business, legal and otherwise. When you’re faced with the choice of how to structure your company, doing your research is a vital step in the process. That means learning more about both a partnership and a corporation so that you can make the choice that best suits the needs of your company. Want to know more? Keep reading to find out everything you need to know. 

What is a Partnership?

Much as the name implies, a partnership is a business that is run by more than one person. Each person shares the responsibilities of operating the company, and many businesses end up being a partnership by default as everyone involved takes on their share of the work. However, just because you have more than one person employed doesn’t mean you have to set up a partnership. 

A partnership is considered a pass-through entity, which means that you won’t pay business income tax. That may sound great, but the catch is that each person in the partnership will need to claim their share of loss and income when they complete their own personal income tax documents. 

There are three types of partnerships. A general partnership is most common and leaves the owners liable for debts, which could include personal property if need be. A limited partnership allows investors who don’t participate in the general running of the business. Finally, a limited liability partnership is used for certain types of businesses, such as medical or legal offices, but keeps the owners from being personally liable for debts or losses. 

What is a Corporation?

Unlike a partnership, a corporation is its own legal entity. The owners, also referred to as shareholders, are never held liable for any losses or debts acquired by the company. To create a corporation, one must file the appropriate paperwork with the state. 

There are two types of corporations. An S-Corp is a pass-through business in which shareholders report income and loss on personal tax papers. There’s a limit of 100 shareholders and each must be a U.S. citizen. A board of directors makes the most major decisions for the company. A C-Corp must pay income tax and shareholders must also pay personal income tax on any monies they receive. A C-Corp has no limit on the number of shareholders. 

partnership and corporation

Which One Is Right For You?

Things to consider when choosing a corporation or partnership include taxes. Do you want to report for the business on your personal income tax? Or would you prefer to keep your business tax separate from your personal tax? Other things to keep in mind are the number of shareholders you plan to have and how you want to structure your business. 

When you’re trying to decide between a partnership and a corporation, you need the experts on your side and somewhere to make the application and registration process easy. Contact Corporation Center today to get started on making the ideal decision for your company and its shareholders.