Question

How do you distinguish a partnership from a corporation? How do you distinguish a public partnership from a public corporation? If you were starting a business with a friend and only had a choice between a partnership and corporation, which would you choose and why?

Answer 1

Answer (a) Partnership and corporation are the form of a business organization. Each has their own advantage and disadvantage.

Meaning of partnership – This is a type of business organization in which two or more individuals pool money, skills, and other resources to earn profit. They share profit and loss accordance with terms of the partnership agreement but if there are now written agreement that profit and loss will be share equally by all partners.

Meaning of Corporation/company- A corporation is a business entity that is owned by its shareholders, who elect a board of director to oversee the organization’s activities. The corporation is liable for the actions and finance of the business, not shareholder. Corporations can be for profit or not for profit.

There are following major difference between a partnership and a corporation.

Basis of difference	Partnership	Corporation
Governing by	Revised uniform partnership act	Company law
Existence	Firm does not has separate existence from partners	Corporation has separate existence from members
Liability	Unlimited	Limited
Management	All partners take parts in management.	Director elected by member can only takes parts in management.
Registration/incorporation	Not mandatory	Company comes into existence after incorporation.
Life	Depend on partners death, retirement, insolvency	Life does not affected from shareholder admission, death, transfer etc.
Audit of accounts	Not compulsory	Statutory compulsory
Capital	Invested by partner	Paid by shareholder.

Answer (b) if I start business with my friend then first of all I will consider following one or more factors before selection.

• Flexibility in structure
• Complexity in startup, operation, compliance.
• Liability of owners
• Taxes on income and its liability on owner.
• Control over business and management.
• Amount of capital investment.
• Licenses, permits, and regulations

If we like and agree the following factor then we should select partnership form of business otherwise corporation will be best choice for us.

•             Less complexity in business startup, process.

•             Unlimited liability of owners

•             Want direct control over business and management

•             Low amount of invested

•             Able to contribute own small capital.