Question

State the differences between partnership and company.

Hint:

While partnerships offer flexibility, companies provide limited liability and better financial security.

Answer 1

The differences between a partnership and a company are as follows:

Legal Structure:
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Partnership: A partnership is an informal business structure where two or more individuals manage and operate a business. -
Company: A company is a legal entity that is separate from its owners (shareholders), and it operates under specific regulations.
Liability:
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Partnership: The liability of the partners is unlimited. Partners are personally liable for the debts of the business. -
Company: The liability of shareholders is limited to the amount they have invested in the company.
Taxation:
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Partnership: The income of the partnership is taxed at the personal income tax rate of the partners. -
Company: A company is taxed as a separate entity, and corporate taxes apply to its profits.
Management:
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Partnership: Partners share equal management responsibilities unless otherwise agreed. -
Company: A company is managed by a board of directors elected by shareholders.
Profit Distribution:
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Partnership: Profits and losses are shared according to the partnership agreement. -
Company: Profits are distributed to shareholders in the form of dividends, based on the number of shares held.

Conclusion:
Both partnerships and companies offer unique advantages, and the choice between them depends on factors like liability, taxation, and management preferences.