The Two Most Common Types of Business Structure

A business is pretty self-explanatory; however, there are some differences between a business and a corporation. A business is defined in the United States as an unincorporated entity or company engaged in business. Companies can either be sole proprietorships or corporations organized as partnerships. A partnership, unlike a corporation, does not have the right to unlimited liability but has responsibilities to its stockholders or owners.

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In contrast to the corporation, which has limited liability, stocks, and profits, a corporation has unlimited liability. This means that lawsuits against a corporation can only be brought by shareholders or by owners of the business itself. There are several ways in which partnerships differ from corporations. Partnerships are subjected to very different rules than small business owners. The IRS administers corporate law in the United States and will impose various regulations on both partnerships and corporations.

For instance, a partnership will be classified as a separate legal entity from the owners of the partnership. Unlike corporations, partnerships cannot have any voting rights or ability to directly control or bind the other partners. This means that if a partnership has a shareholder or members that sue the corporation for breach of contract, fraudulent, or other negligence, then those shareholders or members are individually liable for that action. However, with no corporate form of shareholders or members to act as a defense against suits, a partnership cannot be sued personally.

There are also differences between a partnership and a corporation. A partnership will only be taxed once, whereas a corporation must pay taxes each year based upon its taxable income. Furthermore, a corporation may have an ability to shield itself from certain liabilities by forming an LLC (an “in limited liability company”). A sole proprietorship cannot have an LLC form because it is considered to be a publicly traded corporation.

One key difference between a corporation and a partnership is how the share capital is handled. Partnerships will generally be capitalized by the partners and the shareholders will receive payments, either straight from the partners or via dividends. However, with a corporation, shareholders will generally receive payments via stock dividends, and the corporation itself will pay out money to its shareholders as a result of their stock ownership. A corporation also has the option to issue shares and distribute them to its investors, which is not the case with partnerships. As you can see, there are many key differences between these two common forms of business structure.

When you decide whether to form a partnership, corporation, or limited liability company, make sure you do all the research necessary to ensure that you are making the best decision for your business. If you are going to start up an online business then you may want to look into the options that are available to you and then decide which one will work best for your unique needs. You should consult with an attorney that specializes in these types of businesses to help you figure out what the best choice for your company is.