Are you considering starting a business with someone else? One of the first decisions you’ll need to make is whether to form a partnership or corporation. Both options have their pros and cons, so it’s important to understand the differences before making a choice.
A partnership is a type of business where two or more people share ownership and management responsibilities. Each partner contributes to the company’s finances and shares in its profits and losses. A corporation, on the other hand, is a legal entity that is separate from its owners. It can issue stock, borrow money, and enter into contracts, just like an individual person.
So, which one is the right choice for your business? The answer depends on a variety of factors, such as your goals, the size of your business, and the level of liability protection you need. In the following sections, we’ll explore the differences between partnerships and corporations in more detail, so you can make an informed decision.
Define Partnership
A partnership is a type of business structure where two or more individuals share ownership of the company. Each partner contributes capital, labor, or expertise to the business, and they share in the profits and losses. Partnerships can be formed with a simple agreement between the parties involved, and they are generally easy and inexpensive to set up.
Partnerships can be either general partnerships or limited partnerships. In a general partnership, all partners are equally responsible for the management and liabilities of the business. In a limited partnership, there are both general partners who manage the business and limited partners who only contribute capital and have limited liability.
Define Corporation
A corporation is a legal entity that is separate from its owners. It is owned by shareholders who elect a board of directors to oversee the management of the company. Corporations issue stocks and bonds to raise capital, and they have limited liability, meaning that the owners are not personally responsible for the company’s debts and obligations.
Corporations can be either publicly traded or privately held. Publicly traded corporations offer stocks to the public and are regulated by the Securities and Exchange Commission. Privately held corporations are owned by a small group of individuals and are not required to disclose financial information to the public.
| Partnership | Corporation |
|---|---|
| Owned by two or more individuals who share profits and losses | Owned by shareholders who elect a board of directors to manage the company |
| Partners have unlimited liability | Owners have limited liability |
| Easy and inexpensive to set up | More complex and expensive to set up |
| No stocks or bonds issued | Stocks and bonds issued to raise capital |
How To Properly Use The Words In A Sentence
Using the correct terminology when discussing business structures is essential. The terms “partnership” and “corporation” are often used interchangeably, but they have distinct meanings. In this section, we will explore how to use these words correctly in a sentence.
How To Use “Partnership” In A Sentence
A partnership is a business structure in which two or more individuals share ownership and profits. Here are some examples of how to use “partnership” in a sentence:
- John and Jane formed a partnership to start their own law firm.
- The restaurant is owned by a partnership between two chefs.
- The company operates as a limited partnership, with one general partner and several limited partners.
When using “partnership” in a sentence, it is important to clarify the nature of the partnership, such as whether it is a general or limited partnership.
How To Use “Corporation” In A Sentence
A corporation is a legal entity that is separate from its owners. It can be owned by individuals, other corporations, or even the government. Here are some examples of how to use “corporation” in a sentence:
- Microsoft Corporation is one of the largest technology companies in the world.
- The new factory will be built by a subsidiary corporation of the parent company.
- The corporation’s board of directors is responsible for making major business decisions.
When using “corporation” in a sentence, it is important to specify the type of corporation, such as whether it is a publicly traded or privately held corporation.
More Examples Of Partnership & Corporation Used In Sentences
In order to better understand the differences between a partnership and a corporation, it can be helpful to see examples of each in use. Here are some sentences that use the terms “partnership” and “corporation” in various contexts:
Examples Of Using Partnership In A Sentence
- John and Jane entered into a partnership to start a small business together.
- The law firm operates as a partnership, with each partner sharing in the profits and losses.
- The partnership agreement outlines the roles and responsibilities of each partner.
- They decided to form a partnership because it allowed them to share resources and expertise.
- The partnership dissolved after disagreements arose over the direction of the business.
- As a limited partner, she was not personally liable for the debts of the partnership.
- The partnership’s profits were divided equally among the partners.
- They formed a partnership to invest in real estate and other ventures.
- Under the partnership agreement, any major decisions required the approval of all partners.
- The partnership was dissolved when one of the partners retired.
Examples Of Using Corporation In A Sentence
- The company was incorporated in Delaware and has offices in several states.
- As a shareholder in the corporation, she was entitled to vote on major decisions.
- The corporation’s board of directors is responsible for overseeing the company’s operations.
- The corporation issued new shares of stock to raise capital for expansion.
- The corporation’s profits were reinvested in the business or paid out as dividends to shareholders.
- They decided to incorporate the business to limit their personal liability.
- The corporation’s bylaws outline the rules and procedures for conducting business.
- The corporation was able to secure a loan from the bank based on its assets and creditworthiness.
- Shareholders can sell their shares of stock in the corporation to other investors.
- The corporation was sued for breach of contract by one of its suppliers.
Common Mistakes To Avoid
When it comes to choosing a business entity, many people tend to use partnership and corporation interchangeably. However, this is a common mistake that can have serious consequences for your business. Here are some of the most common mistakes people make and why they are incorrect:
Mistake #1: Assuming A Partnership And A Corporation Are The Same Thing
One of the most common mistakes people make is assuming that a partnership and a corporation are the same thing. While both are business entities, they have different legal structures, tax implications, and liability protections.
A partnership is a business entity where two or more people share ownership of the company. Partnerships are not required to file taxes as a separate entity, as the profits and losses are passed through to the partners’ personal tax returns. However, partners are personally liable for the debts and obligations of the partnership.
A corporation, on the other hand, is a separate legal entity from its owners. It offers limited liability protection to its shareholders, meaning that the shareholders are not personally responsible for the debts and obligations of the company. Corporations are required to file taxes as a separate entity.
Mistake #2: Failing To Understand The Tax Implications
Another common mistake people make is failing to understand the tax implications of a partnership vs. a corporation. As mentioned earlier, partnerships are not required to file taxes as a separate entity, while corporations are. This can have significant tax implications for your business.
For example, if your business is a partnership, you and your partners will be responsible for paying taxes on the profits of the business. However, if your business is a corporation, the company will be responsible for paying taxes on its profits. This can result in double taxation if the profits are distributed to shareholders as dividends.
Mistake #3: Not Considering Liability Protection
One of the main benefits of incorporating your business is the limited liability protection it offers. This means that the shareholders are not personally responsible for the debts and obligations of the company.
Partnerships, on the other hand, do not offer this same level of protection. Partners are personally liable for the debts and obligations of the partnership. This means that if the partnership is sued or goes bankrupt, the partners’ personal assets could be at risk.
Tips To Avoid These Mistakes
To avoid these common mistakes, it’s important to do your research and understand the differences between a partnership and a corporation. Here are a few tips to help you make the right decision:
- Consult with a lawyer or accountant to determine which entity is right for your business
- Consider the tax implications and liability protection offered by each entity
- Make sure you understand the legal requirements and formalities associated with each entity
By taking the time to understand the differences between a partnership and a corporation, you can make an informed decision that will help protect your business and its owners.
Context Matters
When it comes to choosing between a partnership and a corporation, context matters. The decision to form a partnership or a corporation depends on a variety of factors, including the size of the business, the number of owners, the type of business, and the goals of the owners.
Size Of The Business
The size of the business is an important consideration when choosing between a partnership and a corporation. For small businesses, a partnership may be the best choice. Partnerships are typically easier and less expensive to form than corporations, and they offer more flexibility in terms of management and decision-making.
However, as a business grows, a corporation may become a better option. Corporations offer limited liability protection for owners, which can be important as the business becomes larger and more complex. Additionally, corporations can raise capital by selling stock, which can help fund expansion and growth.
Number Of Owners
The number of owners is another factor to consider when choosing between a partnership and a corporation. Partnerships are typically best for businesses with a small number of owners, as they offer more flexibility in terms of decision-making and management. In a partnership, each owner has a say in how the business is run and how profits are distributed.
Corporations, on the other hand, are better suited for businesses with a large number of owners. In a corporation, ownership is divided into shares of stock, which can be bought and sold by investors. This can make it easier to raise capital and bring in new owners, but it also means that decision-making is more complex and may require a board of directors.
Type Of Business
The type of business is also an important consideration when choosing between a partnership and a corporation. Some businesses, such as professional service firms, may be better suited for partnerships. Partnerships allow owners to share in the profits and losses of the business, which can be important in a service-based business where each owner contributes to the success of the business.
Other businesses, such as those in the technology or manufacturing industries, may be better suited for corporations. Corporations offer limited liability protection for owners, which can be important in industries where there is a high risk of lawsuits or other legal issues. Additionally, corporations can raise capital by selling stock, which can be important for businesses that require a significant amount of funding to get started or to grow.
Goals Of The Owners
Finally, the goals of the owners are an important consideration when choosing between a partnership and a corporation. If the owners are primarily interested in maintaining control over the business and making decisions together, a partnership may be the best choice. However, if the owners are interested in raising capital, bringing in new investors, or eventually selling the business, a corporation may be a better option.
Ultimately, the choice between a partnership and a corporation depends on a variety of factors, and there is no one-size-fits-all solution. By considering the size of the business, the number of owners, the type of business, and the goals of the owners, business owners can make an informed decision about which structure is right for them.
Exceptions To The Rules
Identifying Exceptions
While the rules for using partnership and corporation are generally straightforward, there are a few exceptions to keep in mind. These exceptions may arise due to unique circumstances that do not fit neatly into the typical partnership or corporation model.
Exceptions For Partnerships
One exception to the partnership model is the limited liability partnership (LLP). This structure is often used by professional service firms, such as law or accounting firms. In an LLP, each partner is shielded from the debts and liabilities of the other partners. This means that a partner is not held personally responsible for the actions of another partner. Additionally, an LLP offers the tax benefits of a partnership while providing the liability protection of a corporation.
Exceptions For Corporations
One exception to the corporation model is the S corporation. This type of corporation is designed for small businesses and offers the tax benefits of a partnership. An S corporation allows profits and losses to be passed through to the shareholders, who report them on their personal tax returns. This means that the corporation itself is not taxed on its profits. Additionally, an S corporation offers liability protection for its shareholders, similar to a traditional corporation.
Other Exceptions
There may be other exceptions to consider when deciding between a partnership and a corporation. For example, a joint venture is a temporary partnership between two or more businesses for a specific project or purpose. This structure allows the businesses to work together without forming a permanent partnership or corporation.
Examples
To illustrate these exceptions, consider the following examples:
- A group of lawyers decides to form an LLP to protect themselves from the actions of their colleagues.
- A small business owner forms an S corporation to take advantage of the tax benefits and liability protection.
- Two companies form a joint venture to collaborate on a research project without forming a permanent partnership or corporation.
In each of these cases, the typical rules for using a partnership or corporation may not apply. It is important to carefully consider the unique circumstances of your business before deciding on a structure.
Practice Exercises
Understanding the differences between partnership and corporation can be challenging, especially for those who are new to the business world. To help readers improve their understanding and use of partnership and corporation in sentences, the following practice exercises are provided:
Exercise 1: Fill In The Blank
Complete the following sentences with the appropriate term:
- When forming a business, one of the first decisions to make is whether to structure it as a ____________ or a corporation.
- In a ____________, the business owners share profits and losses.
- A ____________ is a separate legal entity from its owners.
- One advantage of a ____________ is that it is easier and less expensive to set up than a corporation.
- In a ____________, the business owners have unlimited liability for the company’s debts.
- A ____________ has limited liability, which means that the owners are not personally responsible for the company’s debts.
Answer key:
| 1 | partnership |
|---|---|
| 2 | partnership |
| 3 | corporation |
| 4 | partnership |
| 5 | partnership |
| 6 | corporation |
Exercise 2: Sentence Completion
Complete the following sentences with the appropriate term:
- A ____________ is owned by its shareholders.
- In a ____________, the owners are personally liable for the company’s debts.
- One advantage of a ____________ is that it can raise capital by selling shares of stock.
- In a ____________, the business owners are not personally responsible for the company’s debts.
- A ____________ is a business that is owned by two or more people.
- In a ____________, the business owners share profits and losses.
Answer key:
| 1 | corporation |
|---|---|
| 2 | partnership |
| 3 | corporation |
| 4 | corporation |
| 5 | partnership |
| 6 | partnership |
By completing these practice exercises, readers can improve their understanding and use of partnership and corporation in sentences. With a better understanding of these two business structures, readers can make informed decisions about which one is best for their specific needs.
Conclusion
In conclusion, the decision to form a partnership or corporation should not be taken lightly. It is important to understand the differences between the two business structures and the legal and tax implications that come with each.
One key takeaway from this article is that partnerships offer more flexibility and control to the partners, while corporations provide limited liability protection and potential tax benefits. It is important to weigh the pros and cons of each structure before making a decision.
Another important consideration is the impact of the choice of business structure on the language used in legal documents and communications. Using the correct terminology and grammar is crucial to avoid misunderstandings and legal disputes.
Encouraging Continued Learning
Learning about grammar and language use is an ongoing process, and it is important to continue to improve these skills as a business owner or professional. Here are some resources to help you continue your education:
- Grammarly – an online writing assistant that helps improve grammar and writing style
- Thesaurus.com – a tool to find synonyms and improve word choice
- Merriam-Webster Dictionary – a trusted resource for definitions and spelling
By continuing to learn and improve your language skills, you can communicate more effectively and avoid costly mistakes in your business.
Shawn Manaher is the founder and CEO of The Content Authority. He’s one part content manager, one part writing ninja organizer, and two parts leader of top content creators. You don’t even want to know what he calls pancakes.