A corporation is defined by the US corporate code as an unincorporated company or unincorporated association, registered with the state in which it conducts business. Corporations may be either for profit or nonprofit entities that function to meet a social objective or further an individual’s social conscience. Business corporations are separate legal entities from the owners who hold the power and control over the company through their ownership or stock ownership. The purpose of a business corporation is to avoid double taxation by passing on the corporate tax burden to the shareholders instead of to the government. Business corporations also have separate public and private policies and are not compelled to support or participate in the policies of the government.
A partnership is defined as a commercial entity where two or more people are related by blood, marriage or common-law marriage. Partnerships may not be registered as corporations. Partnerships may use their assets to accumulate loans, buy property, and make investments. If a partnership observes certain requirements like meeting specified minimum funds or paying specified taxes then this status is protected and the partnerships are not taxed as corporations.
Unincorporated partnerships do not have debts and are not taxable like corporations. This makes them perfect for start-up businesses that need financing but do not yet have the needed accruals to qualify for loans. If the partnership is established to pursue an entrepreneurial goal, then it is called a venture. Ventures can be joint or sole. In a joint partnership, one partner usually owns the other partner’s shares while in a sole partnership, only one partner has shares. There are advantages for all types of partnerships, it depends on the goals of the business.
A corporation is created as a separate legal entity from the shareholders. Once the shareholders approve the formation of a corporation, the corporation takes its own specific laws, book of options, and corporate charter. The corporation may use its own brand name or create a more unique name. It is solely its own liability and ownership structure.
A C corporation is a separate legal entity from the shareholders of a corporation. It does not own the other shareholders and is also not responsible or domiciled. The corporation may use the brand of its products as a way to market and advertise itself. A C corporation does not have to pay income or corporate taxes like a partnership. However, there are differences between a C corporation and a partnership, such as the amount of shares available for distribution.
An LLC, or limited liability company, is a closely held corporation that protects the owners’ personal assets from lawsuits. An LLC does not have any shareholders and has limited liability. When a product is produced by an LLC, there is no need to register the business, and therefore there are no profit limits on the production of the product.
An S corporation or sole proprietorship is another common type of business structure. Like an LLC, it has limited liability and can file personal and business taxes with the IRS. The only major advantage of an S corporation or sole proprietorship is that the owner is considered a “technology asset” in the eyes of the IRS. Also, an S corporation is not considered a partnership and cannot incorporate a technology asset. Therefore, an S corporation or sole proprietorship is good for businesses that produce and/or manage technology assets, like game developers, web designers, and IT consultants.
Business partnerships are another popular structure used in the United States. Partnerships can benefit both the business partners and the company making the partnership. They also allow business owners to make significant profits, although some partnerships can have substantial disadvantages. One of the disadvantages of business partnerships is that there are usually no or limited liability. This means that partners share in the liabilities and losses of the business as a whole, not just one partner’s debts and profits.