The Difference Between a Partnership & an S Corporation

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The difference between a partnership and an S corporation concerns the issue of liability protection. Other differences between a partnership and an S corporation include formation requirements as well as ongoing formalities. A partnership may end or dissolve upon death or withdrawal of a partner. S corporations may continue to operate forever, long after the original owners of the company have withdrawn or past away.

Name

  • Partnerships that choose to operate under a different business name from that of the partners' names must file a "doing business as" (DBA), or "fictitious" business name, as explained on the Citizen Media Law Project website. S corporations rarely file a fictitious business name. Rather, S corporations list the name of the business in the company's formation documents. Many states require S corporations to include a corporate identifier in the business name such as "incorporation," "corporation," or the correct abbreviation. The business name of a partnership may not contain a corporate identifier.

Liability

  • Members of a partnership have unlimited liability for debts and obligations that arise in the business. Business creditors of a partnership may pursue the personal assets of a partner in an effort to recover business debts. Shareholders of an S corporation have limited liability for company debts and obligations. The personal assets of an S corporation shareholder may not be pursued by business creditors in reference to business debts and obligations of the company.

Formation

  • Another difference between a partnership and an S corporation concerns the issue of formation. S corporations are required to file articles of incorporation with the state where the S corporation operates. Furthermore, S corporations must pay the applicable filing fee charged by the state. Filing fees vary from state to state. Business owners are not required to file paperwork with the state to form a partnership. Therefore, partnerships aren't subject to the same filing fees as those imposed on S corporations.

Formalities

  • S corporations have more ongoing requirements when compared to partnerships. S corporations must hold corporate meetings, file annual reports and record corporate minutes. As explained on the Legal Zoom website, partnerships can operate without formal operating procedures. Partnerships aren't required to hold company meetings or file annual reports with the state.

Raising Capital

  • A major difference between a partnership and an S corporation concerns the ability of an S corporation to issue stock to investors. Partnerships can't issue stock, making it harder to raise capital. S corporations may be more appealing to investors because shareholders can invest in the company without being held liable for debts of the S corporation; this isn't the case with a partnership.

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