Partnership Vs Corporation
When a business is started there have to be decisions made as to how they will be managed. Two of the choices are to organize a partnership or a corporation. There are others as well but for the sake of this article we will look at the differences and relative advantages of each of these forms of business management. There isn’t going to be one form of business organization that works any better than any other form but there are different advantages for each that can dictate the fluidity in which a business grows and thrives.
Corporation offers Protections
One of the advantages of starting a corporation is that it allows for a separation from the people who run it. The corporation can be sued and sue others as it sees fit. A partnership is directly responsible for things that occur. So the people who are listed in the partnership agreement can be sued for the actions, or negligence of the business. However the tradeoff is control. Each of the partners will have a designated percentage of control and receive that percentage of the profits. Also a corporation will continue on in existence until it is legally disbanded or destroyed. A partnership exists for an established amount of time determined by the partnership agreement.
Flexibility and Liability
As stated before the liability that one can face as a stockholder or officer of a corporation is going to be nonexistent. They cannot be sued for the misdeeds of the corporation, they can only be held responsible for illegal actions that they had a hand in. Each of the general partners have a liability for the things that happen due to the actions or inactions of the entity. When it comes to flexibility, the shares of a corporation can be bought and sold at will without a lot of legal wrangling. The issues involved in a partnership can’t be renegotiated or transferred to another usually without starting a whole new partnership agreement.
One of the most important things that a legal entity can do is to raise money to run the businesses of the corporation. The manner in which a corporation and a partnership can do this are very different. A corporation is allowed to raise money by selling new stock, or selling bonds or other securities. The partnership is only allowed to raise money through loans, adopting a new member into the partnership or by gaining contributions from existing partners. This has some limits but it also allows for partners to maintain control of the decisions and the profits of their business ventures.
Each form of running a business is going to have different benefits and restrictions but they each provide options for running a business that may benefit some more than others. Each management system should be analyzed before it is implemented.
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