Partnership vs. Corporation

Difference Between Partnership And Corporation

A company refers to an association started by more than one person seeking to sell shares to investors. A partnership also has more than more than one person and benefits and responsibilities are distributed among the partners. The main difference between a partnership and a company is debt.

The responsibility of each member is protected in a company as the personal risk of the member is limited to the extent of investment. A partnership, as a sole proprietorship, does not offer limited liability protection. A limited partnership has more than one partner who is licensed in a business such as an accountant or lawyer. Even a general partnership does not provide liability protection and limited investment opportunities. It is easy to create and requires lesser tax reporting. Each partner’s taxes are based on their own tax levels. All parties must agree to an agreement on the each partner’s percentage in ownership and what roles each will play in the business. A lawyer is usually involved in a partnership. A limited company can be an individual, a partnership or a corporation and is often regarded as halfway between a company and a partnership. The Company does not have any members responsible, just as a company, a partnership also allows for impact on taxes and a less rigidity in working. In Most states a corporation must have at least two members. But this has changed now. Most states today allow sole owner limited companies due to changes in IRS regulations. The rules for partnerships and companies are constantly changing. A C-Corporation is a for-profit and a government agency. The company is taxed and pays taxes separately from its shareholders. The shareholders have ownership of the company and can elect new board. Double taxation may occur in a C-Corporations, a company must pay tax on their profits and pay taxes again when the profits are paid out as dividends. However, double taxation is sometimes avoided by paying shareholders salaries with fringe benefits rather than dividends.

An S-Corporation is a C-Corporation which receives the “S Corporation Status” by filing a 2553 IRS form. S-Corporations are taxed at a breakthrough way rather than as an ordinary company which is taxed on its own ground. Pass-through taxation allows shareholders to pay taxes as members of a partnership. The shareholders report the S company’s profit or loss on their tax returns. Some states may require an additional application form for the “S Corporation Status” with the federal 2553 form.

 

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