Partnerships vs Corporations

Partnerships vs. Corporations

When it comes to accounting processes, reporting, and financial statements, partnerships and corporations differ. Although there are differences, they each have their own benefits and one may be chosen over the other.

In a partnership, a business is owned by more than one person and both profits and liabilities are shared. A corporation is also a business that is owned by more than one person but it sells its shares to investors. One of the major differences between a partnership and a corporation is liability.

The liability of each member is protected in a corporation as personal risk is limited by the investment. A partnership carries limited liability protection. A limited liability partnership, however, has more than one partner that is licensed, such as an accountant or a lawyer.

While a general partnership provides no liability protection and limited investment opportunities, it is easy to create and involves simple tax reporting. All partners must reach an agreement about the percentage each partner holds in ownership as well as what roles each will have in the business. The owners of a partnership may be held liable for any business activity or obligation. Corporate shareholders, however, usually are liable only for the amount they invested.

Advantages of a partnership may also include the idea that many partners share several ideas and resolutions for review in determining the best courses of action within an organization.

According to management law, a corporation must be managed by a board of directors elected by the corporation's shareholders. The management structure of a partnership, however, is decided by its partners.

One benefit or advantage of a corporation is it permits otherwise unaffiliated people to join together in mutual ownership of a business. This can be accomplished in other ways like a partnership, but a corporation is arguably one of the better types of organizations. The stock of the...