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). |