What is the difference between incorporation and partnership

The profits in a partnership may be greater, as there are usually less owners than a corporation. However, a partnership has limited investment chances and no liability protections, which means that if anything goes wrong, the owners are held directly responsible.

This is not the case in a corporation, as the corporation is a separate legal entity, the blame does not fall on the stockholders, but on the corporation itself and possibly on the board of directors.

Also, a general partnership is easier to set up with limited paperwork, legal proceedings and tax obligations. In regard to this, the setup and operation of a corporation is much more complicated, with much more intricate legal proceedings and taxations. Also, in some areas, a corporation may have to submit paperwork with the government on a yearly basis, such meeting minutes.

Additional differences include:. Members of a corporation have to act in accordance with the corporation's charter. More structured, less flexible. This is so if there is a problem, the injured or aggrieved parties know where to serve you with official papers.

This is a matter of public policy and you should comply with this state law requirement and evaluate where you should go on record with a certificate of authority. We cannot tell you whether your home state requires you to go on record. That is a legal opinion. IncNow is a filing service, not a law firm. You may want to contact legal counsel in your home state or make the decision for yourself after reviewing the laws in your home state. To avoid this trouble, you can play it safe and just go on record.

If you are wondering what the penalty is for not going on record, that too is a matter of state law. Other states may have different rules which are not as forgiving. What is the purpose of this? Is this just another way for your home state to make money? In law school, there is a class known as Civil Procedure. Therefore the courts of those two states have jurisdiction over your business over anything under the sun, no matter where the controversy arose, if the plaintiff chooses to file in those states.

In order to let people know how to get in touch with you in the states where you have general jurisdiction, you must have a physical presence on public record in both states. This filing allows people to look-up your company name with the secretary of state and locate an address where to serve your company legal papers within the boundaries of the state.

How do you know if you need to register in the state of your principle place of business? In some states, banks may also request the qualification in order to open the bank account for the company in the state of the principle place of business. Sometimes micro-businesses that are one person activities are no required to file the certificate of authority.

Profits and losses pass through to the individual partners. The partnership reports profits and losses to the IRS and partners include their share of this in the return.

Corporations pay state and federal taxes, with shareholders also paying taxes on dividends, salaries, and bonuses. The corporate tax rate is often lower than the individual tax rate.

Corporations have a more formal management structure than partnerships. Shareholders govern the corporation. They hold regular meetings that determine company policies and management.

Shareholders usually don't have a lot of day-to-day involvement in the company's management; instead, they oversee managers who handle daily business activities. All of the general partners in a partnership work together to decide how to run the company. Partners often share in deciding how to hire and monitor managers. They also often assume management responsibilities themselves. Each business structure offers a unique set of advantages, as well as disadvantages.

A general partnership works much like a sole proprietorship, except for having two or more owners, advises UpCounsel. You can launch with minimal paperwork, although having a written agreement is usually a good idea.

The partnership has no legal existence independent from you and your partners. The profits are your earnings, and the debts are your debts. As the Incorporate website explains, a limited partnership works much the same way, but the differences are significant.

A limited partner is the classic silent partner, putting up money but having no say in how the business is run and managed. The general partners handle all management decisions.

The advantage for the limited partner is that with less control comes greater liability protection. The limited partner only has to pay up to the limits of their initial investment.