Question

What is the difference between a partnership and a corporation, and which one do you think is best for a small business?

Answer 1

DIFFERENCES BETWEEN PARTNERSHIP AND CORPORATION

Sl.No.	PARTNERSHIP	CORPORATION
1	In terms of Business Entities, Partnership is formed with minimum two persons who share ownership, profits, liabilities of the business. Here the patners runs and manages the business.	Corporation is owned by share holders where the shareholders decides on how to run the company. The shareholders appoint management to run the business.
2	A partnership has a specified duration or may dissolve due to the death of a partner.	A corporation continues until dissolved by law and its life is not affected due to the death of any shareholder.
3	The ownership is not separate from the Partnership. Here the partners share the ownership, risks or rewards of the business.	For Corporation, it has a separate legal recoginition and hence the corporation is separate from its owners.
4	In Partnership, the liability of the partners is Unlimited and the partners share all the liabilities incurred apart from capital when the business is closed.	Coporation's Liability is limited to the extent of their Sharecapital invested in to the business.
5	In Partnership, the Profits and losses are shared by the partners according to their aggreed ratio.	In case of corporation, the profits are reinvested in to the business, and whenever required, the profits are distributed in the form of Dividends to the shareholders.
6	Partners invest capital in form of money, assets etc. to run the business	Whereas in case of corporation, the capital is issued in form of Shares.
7	The legal requirements for the formation of the partnership is easy and can be formed with less legal requirements and paperwork. Also after the formation, the obligations are also less compared to the corporation.	The legal requirements for the formation of the company is more and the obligations for running a corporation are cumbersome.

OPINION: For a small business, it is better to form a partnership, since the formation is easy, less paperwork, less legal requirements and obligations than a corporation. Also, since the capital required for a small business is also low, it can be easily brought in by the partners. Since a small business holder maynot follow all the obligations a corporation should follow, it is better for small business to form a partnership. The cost of Formation is also less for a partnership and hence it is easy for a small business to start a partnership The legal requirements to run a corporation may also cost the business more than a partnership. Hence it is advisable to start a partnership for a small business. Also a partnership can be converted in to a corporation, when required, I.e, in case of the business growth is good and may require huge capital requirement. In such a case a partnership can be converted into a corporation.