Business formations Partnerships versus Corporations
Document Type:Research Paper
The cooperation's always enjoyed rights and is responsibilities based on the shares of the owners. The corporation always has the right to get some loan, they can also sign contracts, people can sue, or the company can be sued, it is still reliable to employ the required staff as well as by its taxes and pay and remit taxes as required. The owners of the corporation contribute to the business but are not held reliable for the losses or the debts of it. Some of the examples of a well-known corporation are like coca cola corporation, Toyota motors corporation, Microsoft corporation among others. This paper compares and contrasts two modes of business formations, which include partnerships and corporations alongside highlighting some of the advantages and disadvantages of each business formation.
The owners are directly involved in the gains and losses of the business. They are still reliable for the running of all the events of the business. They share the profits and losses based on the shares they have invested in the business. When the business is not doing well, the owners may decide to contribute or add more shares to the business which act as shares. In partnership, if one partner quit or dies is the partnership is referred to be null, and it does not exist, and it should be structured again. They also decide who is supposed to run and manage it (Kohler 347-357). A partnership is a business owned by different people and like in general partnership which is very common in business the partners are responsible for in undertaking all the management duties, paying all the bills which are required and sharing the profits and losses among all the partners.
In limited partnerships, general partners share the responsibilities of the business while limited partners will act as only investors. The general partners will be able to cater for all expenses and make sure that the running of the business is well while the limited partners are paid based on bonuses or as per agreement of the partners. Moreover, the initial cost of starting a corporation is high and more difficult compared to a partnership. According to Dowling, they do not cater for the losses or any legal obligation which means they cannot be sued but the corporation can be sued unlike in partnership where they can be sued directly (Dowling et al. The corporation is the one which responsible for all debts, and the shareholders are not at any risk at any given time to lose its assets where in partnership the owners or the partners can be at risk of lose the assets.
It means it is so much secure to invest in a corporation other than the partnership due to the risk of losing his or her assets. Besides, taxation differs in these two form of business that is in the corporation they are supposed to pay taxes like state or national taxes. The shareholders are also entitled to pay taxes on what their wages, dividends and also the bonuses they get from the corporation. They also have to comply with bodies that are related to their industry (Kaya et al. Additionally, dissolution is also other difference between partnerships with corporations. In a partnership, it can be dissolved when the members agree to dissolve it (Kohler 347-357). There are still other factors that can lead to the dissolution as agreed of the agreement, which they drafted when they began the partnership.
These factors may include the end of the contract, one partner dies or leaves or in case of disagreement. Further, period is also a difference that differentiates partnership from corporations. Corporation as long as they can sustain themselves they can run in the rest of the life. While in the some of the partnership has the time frame and they can only exist within it. Some partnerships are guided by some projects where when the project is over the partnership is termed to be over. Whereas, in the corporation there is no period since they have many projects, which they are supposed to run in their life (Kohler 347-357). Partnership depends on the project it is formed based on and if the project is over it means the partnership still it does not exist anymore.
The partnership is formed and the law which guides them to run well and protect all the parties which are involved in the agreement. Where incorporation the definition is an authorized entity that is distinct and different from the people who own it. The people who are stakeholders are not part of the running of the business. Their purpose is to come up with long-term plans. One of the advantages of a partnership is capital. Since in partnership the partners can agree on the amount to contribute it becomes easy to contribute the amount required. The more the partners means more money will be produced and also members will contribute less amount. Also, when they want to expand their business, they plan and agree on how they can add more cash to boost or invest more in the business.
Besides, they contribute equally, meaning they likewise share the profits equally, and if they contributed differently, they would share according to their agreement. This helps to give the best possible to the business since each is dealing with the area is best on. Firstly, one of the significant drawbacks of partnership is disagreements. People have a different opinion and, in some situation, they may not agree with some decision which may not affect the business only but also a personal relationship with friends. It always advised drafting an agreement before entering any partnership so that it guides you in doing business. It helps in the situation some disagreements arise so that it can be used as the guide to do business (Piening et al.
They need only to invest the assets which are purchased is entitled to the corporation and not them as individuals. This leads them to be more secure and less risk of losing their assets. The corporation is the one entitled for all the liabilities and not the shareholders. The second advantage is the source of capital. Corporation raises capital by selling of shares or bonds. This leads the tax to be deducted twice. Since it is the same amount of money deducted from the company, after it has been shared among the stakeholders, it also tasked again. As per Kohler, independent management is a key difficulty in corporations. This occurs if the corporation has many investors who have no common goal.
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