One of the first decisions entrepreneurs have to make is what type of business to register as. The type of business structure selected has significant impact on the business and consequences for the future of the company, including tax implications, liability concerns and how the business will be operated. Two different business types, among others, include corporations and partnerships. The basic structures of corporations and partnerships are quite different. Entrepreneurs starting a business may wonder about the differences.
To begin with, more parties are involved in the decision-making process in a corporation and the management structure of corporations is more complicated than partnerships. A corporation is an entity owned by shareholders that decide how the corporation will be managed and run. In a partnership structure, two or more partners share ownership of the company. Corporations are also more expensive to start than partnerships and entail complicated tax and legal requirements. Partnerships are simpler to form, but it is important to be familiar with the filings, permits or licenses required by either specific business structure.
Corporations do not include personal liability for shareholders, however, personal liability can apply to partners in a partnership. Partnerships are sometimes considered to enjoy pass through taxation through the partnership to the partners, while corporations are taxed as are their shareholders, which is sometimes considered double taxation. It is useful for entrepreneurs starting a business to understand the tax implications of their business structure selection, as well as the liability implications.
Starting a business is an exciting opportunity, but some of the first decisions made may have a significant impact on the future and success of the business. As a result, it is helpful to be familiar with different business structures that are available.
Source: Smallbusiness.chron.com, “5 Major Differences Between a Corporation and a Partnership,” Marnie Kunz, Accessed Feb. 26, 2017