Morne Patterson – Key Differences Between a Company and a Partnership
Starting a business involves deciding on a legal structure for the venture. Two common choices are a company and a partnership. Both types of legal structures have advantages and disadvantages, and understanding the key differences between these two is essential for entrepreneurs.
The Differences
The primary difference between a company and a partnership is that a company has limited liability, while a partnership does not. This means that if the company goes bankrupt, the shareholders’ liability is limited to the amount of money they have invested in the company. However, the partners in a partnership are personally responsible for any of the partnership debts and their personally owned assets may be forfeited should the business default.
Tax treatment of a company and a partnership also vary. With a company, the corporate tax rate applies, and any after tax profits which are distributed to shareholders are taxed as dividends. With a partnership, the profits of the partnership are allocated to each partner in their personal capacity and included in their individual income tax return.
Management structure of a company and a partnership is another large difference. A company is managed and controlled by the board of directors, while the partners in a partnership are in charge of making decisions.
Another practical difference relates to the number of people involved. With a company you will require at least one shareholder and one director, who can be the same person but this is merely an