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Maybe I overstudied this and just dont get basics anymore, but what is the difference between a partnership and a corporation? Is it just that a corporation is on a larger scale and has public stock? If I have a mixed partnership with general and limited partners and have stock issued what makes me a partnership instead of a corporation?

I'm a little rusty on this, but I believe the most basic difference is that a corporation must follow certain formalities, such as filing incorporation documents with the state and setting up a governance structure, whereas a partnership doesn't need to file anything or have any formal structure.

E.g.:

If my buddy and I want to start a corporation, we check our state's laws and file a bunch of paperwork and elect a board of directors and do everything else the law says so we can form a legal entity.

If we want to form a partnership, we both contribute to the business and share in the profits and losses, but we can either have a partnership agreement spelling out the terms of our relationship or go with the state's default partnership law, but that doesn't matter as to our status as a legal entity. If we want to limit our liability, we file some paperwork, but again, that paperwork doesn't make us a different legal entity.

Perhaps someone more expert can elaborate or correct me if need be.

They're different in a lot of ways, in everything from formation, to liability, to dissolution, etc. Some big unique characteristics about corporations include its legal personality (e.g. citizens united), tax treatment (income to the corporation gets taxed in addition to personal income, so basically income gets taxed twice, unlike a partnership), formal separation of ownership and control (shareholders/board of directors), liquidity, etc.

When you start looking at unincorporated limited liability entities like LPs, LLCs, etc. it's really easy to get confused and stop seeing the difference between them because these firms are intentionally designed to be a hybrid between partnerships and corporations. Typically, they seek to combine the tax advantages of partnerships with the liability advantages of corporations.

Just understand what the basic characteristics are of a corporation as opposed to a normal partnership, and then know that all of those weird things like LLPs use some of the characteristics of both.

I hope that helps. I'm no expert, but that's how I've always understood it.

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You're a partnership instead of a corporation because you didn't file incorporation documents with the secretary of state. A partnership is the default form of business- meaning that individuals who do not intend to be in a partnership may find themselves in one. You cannot find yourself in a corporation without intending to be in one (filing with the SoS).

Also the general partners in a mixed partnership can be held unlimited liable for the acts of the partnership. The same is not true for someone who is a "partner" of a corporation; you cannot attach personal liability to any individual (over what their investment is in the corporation) without piercing the corporate veil.

Ignore every answer but this one:

MinEMorris wrote:They're different in a lot of ways, in everything from formation, to liability, to dissolution, etc. Some big unique characteristics about corporations include its legal personality (e.g. citizens united), tax treatment (income to the corporation gets taxed in addition to personal income, so basically income gets taxed twice, unlike a partnership), formal separation of ownership and control (shareholders/board of directors), liquidity, etc.

When you start looking at unincorporated limited liability entities like LPs, LLCs, etc. it's really easy to get confused and stop seeing the difference between them because these firms are intentionally designed to be a hybrid between partnerships and corporations. Typically, they seek to combine the tax advantages of partnerships with the liability advantages of corporations.

Just understand what the basic characteristics are of a corporation as opposed to a normal partnership, and then know that all of those weird things like LLPs use some of the characteristics of both.

I hope that helps. I'm no expert, but that's how I've always understood it.

This actually cleared up a lot of my confusion. Once I file the articles of incorporation, am I by default an LLC or are there other types. My class only taught Corporations and LLC, so I guess I am not seeing the difference between those two as it seems like if you incorporate you become limited liability by default.

BarbellDreams wrote:This actually cleared up a lot of my confusion. Once I file the articles of incorporation, am I by default an LLC or are there other types. My class only taught Corporations and LLC, so I guess I am not seeing the difference between those two as it seems like if you incorporate you become limited liability by default.

You file articles of incorporation if you want to be a corporation, you file articles of organization if you want to be an LLC.

There are also limitations on the capital structure (types of shares, the process of transferring them, that sort of stuff) on LLCs, they get different tax treatment from corporations, some states restrict the kind of business LLCs can do, and most aspects of the firm are dictated by the LLC's operation agreement, as opposed to the articles of incorporation/bylaws for corporations. That's about the only differences I really know, if it helps at all.

dingbat wrote:Ignore every answer but this one:

MinEMorris wrote:They're different in a lot of ways, in everything from formation, to liability, to dissolution, etc. Some big unique characteristics about corporations include its legal personality (e.g. citizens united), tax treatment (income to the corporation gets taxed in addition to personal income, so basically income gets taxed twice, unlike a partnership), formal separation of ownership and control (shareholders/board of directors), liquidity, etc.

When you start looking at unincorporated limited liability entities like LPs, LLCs, etc. it's really easy to get confused and stop seeing the difference between them because these firms are intentionally designed to be a hybrid between partnerships and corporations. Typically, they seek to combine the tax advantages of partnerships with the liability advantages of corporations.

Just understand what the basic characteristics are of a corporation as opposed to a normal partnership, and then know that all of those weird things like LLPs use some of the characteristics of both.

I hope that helps. I'm no expert, but that's how I've always understood it.

Lol, every answer seems right so far, but this is the one that's least responsive to OP's first question.