What is the difference between a partnership and a corporation?
The main difference between a partnership and a corporation is the way they are taxed and how legally responsible the owners are. In Texas, a partnership is an agreement between two or more people to run a business that is not formally registered with the state. Partnerships have no legal existence separate from its owners, meaning that the partners personally liable for any debts, obligations, and liabilities of the business. This means that each partner is held responsible for the actions of the other. In contrast, a corporation is a legal entity that is separate from its owners. It must be formed and registered with the state, and may be owned by shareholders that do not have to be actively involved in the business. The corporation is responsible for its own debts and liabilities and the shareholders are only liable to the extent of their investments. Corporations can also issue stock and the shareholders have the right to vote on major decisions. In Texas, corporations have the advantage of limited liability protection, which means that shareholders will not be held personally liable for corporate debts. Additionally, corporations are subject to different taxation rules than partnerships, and corporate profits are taxed differently from partner’s income. Overall, the key difference between a partnership and a corporation is that a partnership is personally liable while a corporation is separate from its owners and enjoys limited liability protection.
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