The Difference Between Company and Partnership
When starting a business, one of the crucial decisions to make is choosing the right business structure. Two popular options are a company and a partnership. While they share some similarities, they are different in important ways.
What Is a Company?
A company is a separate legal entity that is owned by shareholders who share in profits and have limited liability. It has a board of directors that oversees the company’s operations and management team, which handles day-to-day activities. A company can raise capital through the sale of shares of stock and has perpetual existence, meaning it can continue to exist even if the original founders are no longer involved.
What Is a Partnership?
A partnership is a business owned by two or more individuals who share in profits and losses. Partners can contribute capital and labor, and each partner has unlimited personal liability for the debts and obligations of the partnership. A partnership can exist through a formal agreement or an informal arrangement.
Key Differences Between Company and Partnership
The key differences between a company and a partnership are:
– Legal Structure: A company is a separate legal entity, while a partnership is not. A company is considered a “person” in the eyes of the law and can enter into contracts, sue or be sued, and own property.
– Ownership: A company is owned by shareholders, while a partnership is owned by partners.
– Liability: Shareholders have limited liability in a company, which means their personal assets are protected if the company goes bankrupt or faces legal action. Partners, on the other hand, have unlimited personal liability, which means their personal assets can be seized to pay off any debts or obligations of the partnership.
– Management: A company is managed by a board of directors and a management team, while a partnership is managed by the partners.
– Taxation: A company is taxed as a separate entity, while a partnership is taxed as a pass-through entity, which means the profits and losses are passed through to the partners who report it on their individual tax returns.
Which Is Right for Your Business?
Deciding on the right business structure depends on various factors, such as the size of the business, the number of owners, and the level of liability protection required. A company is usually suitable for larger businesses with multiple shareholders and a need for limited liability protection. A partnership, on the other hand, is suitable for smaller businesses with a few owners who are willing to share profits and losses and are comfortable with unlimited liability.
In conclusion, understanding the differences between a company and a partnership can help you make an informed decision on the right business structure for your needs. Consider seeking professional advice from a lawyer or accountant to help you weigh the pros and cons of each option.
Table difference between company and partnership
| Company | Partnership | |
|---|---|---|
| Definition | A separate legal entity created to carry on a business. | A business owned by two or more people, who share profits and losses. |
| Liability | Limited liability – shareholders are only responsible for the amount they have invested in the company. | Unlimited liability – partners are personally responsible for the debts and obligations of the business. |
| Management | Managed by a board of directors elected by the shareholders. | Managed by the partners who have an equal say in the management of the business. |
| Taxation | Taxed as a separate entity and may have lower tax rates than other businesses. | Not taxed as a separate entity, but profits are distributed to partners who pay taxes on their individual tax returns. |
| Ownership | Owned by shareholders who may buy and sell shares of the company. | Owned by two or more partners who share profits and losses. |