Partnerships and Corporations
Partnerships and corporations are among the commonest formal organizations in the United States of America (USA). In the process of selecting these entities as their preferred organizational types, owners of the entities usually take professional advice regarding the legal, tax and other pertinent matters associated with particular organizational types. This advice is usually the basis of the owners’ ultimate decisions about the forms their organizations take. Consequently, partnerships and corporations are entities formed after significant due diligence.
A partnership is a business entity established on the basis of the resources and expertise of two or more persons who, together, own and manage the entity. A corporation, however, is an entity established and controlled by private persons whose corporate objectives may or may not include the profit motive. The process of establishing the corporation is termed incorporation; it is this process that leads to corporations having the word “Inc” appended to their proper names. Incorporation may be by registration or it may result directly from legislation. Corporations, in the USA, are usually formed on the basis of state laws.
Partnerships may be general or limited. The limited partnership (LP) is a business establishment that is obliged to have at least one general partner; it may have one or more limited partners. A general partner may commit the LP to transactions only if all the partners authorize such commitments. Limited partnerships have limited liability and the limited partners have no managerial clout. These partners’ liabilities for the partnership’s debts vary according to each partner’s legal investment in the organization. According to the terms of the existing partnership agreement, general partners pay returns on investments to the limited partners. General partners are liable for losses incurred by the LP.
With its charter from the respective state, the corporation’s legal status as an entity is different from that of its owners. Legally, the corporation has its peculiar personality and its owners are its shareholders whose liabilities – for the company – vary with their investments. Shareholders elect a board of directors to manage the corporation; they do not manage the corporation. On account of their ownership and managerial structures, corporations are subject to tax regimes that may be advantageous and disadvantageous to them. This fact differentiates them from limited partnerships. Corporations’ attributes include their operation as going concerns, the issuing of shares and the transfer of stock.
According to the number of owners, the limited liability company (LLC) is a hybrid of the corporation and the partnership. The LLC is not considered a corporation and is suitable for organizations having single owners. It is similar to the corporation because of the limited liability and it is similar to the partnership because of the income tax regime.