How does a partnership differ from a corporation?

A partnership is a business owned by two or more people, while a corporation is a separate legal entity owned by shareholders.

A partnership is a type of business structure where two or more individuals come together to carry out a business. Each partner contributes resources such as capital, skills or property, and shares in the profits and losses of the business. Partnerships are relatively easy to establish and offer more financial resources than sole proprietorships as they have more than one owner. However, partners are personally liable for the business's debts, which means their personal assets may be at risk.

On the other hand, a corporation is a business structure that is considered a separate legal entity from its owners, who are known as shareholders. This means that the corporation itself, not the shareholders, is legally liable for the actions and debts the business incurs. Corporations are more complex to establish and have more regulatory requirements than partnerships. They are governed by a board of directors and their profits are subject to corporate tax rates. Additionally, any profits distributed to shareholders in the form of dividends are also taxed as income.

The main difference between a partnership and a corporation lies in their structure and liability. In a partnership, the business is not separate from its owners, and the partners are personally liable for the business's debts. In contrast, a corporation is a separate entity, and the shareholders have limited liability, meaning they are only liable for the amount they have invested in the company. This difference in liability can have significant implications for the owners, particularly in terms of financial risk.

Another key difference is the way profits are distributed and taxed. In a partnership, profits are divided among the partners and taxed as personal income. In a corporation, profits can be retained within the company or distributed to shareholders as dividends, which are then taxed as personal income. This can lead to 'double taxation' in corporations, where profits are taxed at both the corporate and personal level.