Corporation vs. Partnership
The choice isn’t 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
|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.|
||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 ex-members.|
|Raising Capital||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 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 can’t be pledged.|
|Management||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).|