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

 Corporation  Partnership
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.
Changing Ownership 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).

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