Number of contents

No.
1

Parts of describing

Introduction

definition of sole
partnership

Merits/ Advantage
partnership
Demerits/ Disadvantage of
partnership
definition corporation

4
5
6

Merits/ Advantage of
corporation

Demerits/ Disadvantage of
corporation

8
9

Differences Between Sole

Partnership and corporation.
conclusion

Page no.

Introduction
A sole partnership is a business that has a single owner who is responsible for
making decisions for the company. A partnership consists of two or more individuals
who share the responsibility of running the company. A corporation is one of the
most recognizable business structures and has a separate identity from the owners
of the company. One or more owners may participate as shareholders of a
corporation.

Definition of sole partnership

The sole partnership is a popular business form due to its simplicity, ease of setup,
and nominal cost. A sole proprietor need only register his or her name and secure
local licenses, and the sole proprietor is ready for business. A distinct disadvantage,
however, is that the owner of a sole partnership remains personally liable for all the
business's debts. So, if a sole proprietor business runs into financial trouble,
creditors can bring lawsuits against the business owner. If such suits are successful,
the owner will have to pay the business debts with his or her own money.
The owner of a sole partnership typically signs contracts in his or her own name,
because the sole partnership has no separate identity under the law. The sole
proprietor owner will typically have customers write checks in the owner's name,
even if the business uses a fictitious name. Sole proprietor owners can, and often
do, commingle personal and business property and funds, something that
partnerships, LLCs and corporations cannot do. Sole partnerships often have their
bank accounts in the name of the owner. Sole proprietors need not observe
formalities such as voting and meetings associated with the more complex business
forms. Sole partnerships can bring lawsuits (and can be sued) using the name of the
sole proprietor owner. Many businesses begin as sole partnerships and graduate to
more complex business forms as the business develops.
Because a sole partnership is indistinguishable from its owner, sole partnership
taxation is quite simple. The income earned by a sole partnership is income earned
by its owner. A sole proprietor reports the sole partnership income and/or losses and
expenses by filling out and filing a Schedule C, along with the standard Form 1040.
Your profits and losses are first recorded on a tax form called Schedule C, which is
filed along with your 1040. Then the "bottom-line amount" from Schedule C is
transferred to your personal tax return. This aspect is attractive because business
losses you suffer may offset income earned from other sources.
As a sole proprietor, you must also file a Schedule SE with Form 1040. You use
Schedule SE to calculate how much self-employment tax you owe. You need not pay
unemployment tax on yourself, although you must pay unemployment tax on any

employees of the business. Of course, you won't enjoy unemployment benefits

should the business suffer.
Sole proprietors are personally liable for all debts of a sole partnership business.
Let's examine this more closely because the potential liability can be alarming.
Assume that a sole proprietor borrows money to operate but the business loses its
major customer, goes out of business, and is unable to repay the loan. The sole
proprietor is liable for the amount of the loan, which can potentially consume all her
personal assets.
Imagine an even worse scenario: The sole proprietor (or even one her employees) is
involved in a business-related accident in which someone is injured or killed. The
resulting negligence case can be brought against the sole proprietor owner and
against her personal assets, such as her bank account, her retirement accounts,
and even her home.
Consider the preceding paragraphs carefully before selecting a sole partnership as
your business form. Accidents do happen, and businesses go out of business all the
time. Any sole partnership that suffers such an unfortunate circumstance is likely to
quickly become a nightmare for its owner.
If a sole proprietor is wronged by another party, he can bring a lawsuit in his own
name. Conversely, if a corporation or LLC is wronged by another party, the entity
must bring its claim under the name of the company.

Advantage of sole partenership

There are many reasons why a person would choose to start their business up using
a sole proprietorship structure. Some of the main advantages of sole proprietorships
include:

Ease of formation: Starting a sole proprietorship is much less complicated

than starting a formal corporation, and also much cheaper. Some states allow
sole proprietorships to be formed without the double taxation standards
applicable to most corporations. The proprietorship can be named after the
owner, or a fictitious name can be used to enhance the business marketing

Tax benefits: The owner of a sole proprietorship is not required to file a

separate business tax report. Instead, they will list business information and
figures within their individual tax return. This can save additional costs on
accounting and tax filing. The business will be taxed at the rates applied to
personal income, not corporate tax rates

Employment: Sole proprietorships can hire employees. This can lead to

many of the benefits associated with job creation, such as tax breaks. Also,

spouses of the business owner can be employed without having to be

formally declared as an employee. Married couples can also start a sole
proprietorship, though liability can only assumed by one individual

Decision making: Control over all business decisions remains in the hands
of the owner. The owner can also fully transfer the sole proprietorship at any
time as they deem necessary

Disadvantage of sole partnership

Forming a sole proprietorship does involve some risks, mainly to the owner of the
business, as legally speaking they are not treated separately from the
business. Some disadvantages of sole proprietorships are:

Liability: The business owner will be held directly responsible for any losses,
debts, or violations coming from the business. For example if the business
must pay any debts, these will be satisfied from the owners own personal
funds. The owner could be sued for any unlawful acts committed by the
employees. This is drastically different from corporations, wherein the
members enjoy limited liability (i.e., they cannot be held liable for losses or
violations)

Taxes: While there are many tax benefits to sole proprietorships, a main
drawback is that the owner must pay self-employment taxes. Also, some tax
benefits may not be deductible, such as health insurance premiums for
employees

Lack of continuity: The business does not continue if the owner becomes
deceased or incapacitated, since they are treated as one and the same. Upon
the owners death, the business is liquidated and becomes part of the
owners personal estate, to be distributed to beneficiaries. This can result in
heavy tax consequences on beneficiaries due to inheritance taxes and estate
taxes

Difficulty in raising capital: Since the initial funds are usually provided by
the owner, it can be difficult to generate capital. Sole proprietorships do not
issue stocks or other money-generating investments like corporations do

Definition of Corporation
A corporate structure is perhaps the most advantageous way to start a business
because the corporation exists as a separate entity. In general, a corporation has all
the legal rights of an individual, except for the right to vote and certain other
limitations. Corporations are given the right to exist by the state that issues their
charter. If you incorporate in one state to take advantage of liberal corporate laws
but do business in another state, you'll have to file for "qualification" in the state in
which you wish to operate the business. There's usually a fee that must be paid to
qualify to do business in a state.
You can incorporate your business by filing articles of incorporation with the
appropriate agency in your state. Usually, only one corporation can have any given
name in each state. After incorporation, stock is issued to the company's
shareholders in exchange for the cash or other assets they transfer to it in return for
that stock. Once a year, the shareholders elect the board of directors, who meet to
discuss and guide corporate affairs anywhere from once a month to once a year.
Each year, the directors elect officers such as a president, secretary and treasurer
to conduct the day-to-day affairs of the corporate business. There also may be
additional officers such as vice presidents, if the directors so decide. Along with the
articles of incorporation, the directors and shareholders usually adopt corporate
bylaws that govern the powers and authority of the directors, officers and
shareholders.
Even small, private, professional corporations, such as a legal or dental practice,
need to adhere to the principles that govern a corporation. For instance, upon
incorporation, common stock needs to be distributed to the shareholders and a
board of directors elected. If there's only one person forming the corporation, that
person is the sole shareholder of stock in the corporation and can elect himself or
herself to the board of directors as well as any other individuals that person deems

appropriate.
Corporations, if properly formed, capitalized and operated (including appropriate
annual meetings of shareholders and directors) limit the liability of their
shareholders. Even if the corporation is not successful or is held liable for damages
in a lawsuit, the most a shareholder can lose is his or her investment in the stock.
The shareholder's personal assets are not on the line for corporate liabilities.
Corporations file Form 1120 with the IRS and pay their own taxes. Salaries paid to
shareholders who are employees of the corporation are deductible. But dividends
paid to shareholders aren't deductible and therefore don't reduce the corporation's
tax liability. A corporation must end its tax year on December 31 if it derives its
income primarily from personal services (such as dental care, legal counseling,
business consulting and so on) provided by its shareholders.
If the corporation is small, the shareholders should prepare and sign a shareholders
buy-sell agreement. This contract provides that if a shareholder dies or wants to sell
his or her stock, it must first be offered to the surviving shareholders. It also may
provide for a method to determine the fair price that should be paid for those
shares. Such agreements are usually funded with life insurance to purchase the
stock of deceased shareholders.
If a corporation is large and sells its shares to many individuals, it may have to
register with the Securities and Exchange Commission (SEC) or state regulatory
bodies. More common is the corporation with only a few shareholders, which can
issue its shares without any such registration under private offering exemptions. For
a small corporation, responsibilities of the shareholders can be defined in the
corporate minutes, and a shareholder who wants to leave can be accommodated
without many legal hassles. Also, until your small corporation has operated
successfully for many years, you will most likely still have to accept personal liability
for any loans made by banks or other lenders to your corporation.
While some people feel that a corporation enhances the image of a small business,
one disadvantage is the potential double taxation: The corporation must pay taxes
on its net income, and shareholders must also pay taxes on any dividends received
from the corporation. Business owners often increase their own salaries to reduce or
wipe out corporate profits and thereby lower the possibility of having those profits
taxed twice-once to the corporation and again to the shareholders upon receipt of
dividends from the corporation.

Advantages of corporation
In the late 1980s many large corporations saw themselves being overtaken by
much smaller firms due to their innovations and efficiency. This caused concern in

all the quarters and forced management of large corporations to take some quick
steps to keep their top positions in the market intact. This phenomenon could be
especially seen in the technology industry where big and old companies like IBM,
Siemens, and DEC etc. found it difficult to compete with smaller firms with lowers
prices and new designs. Although this cannot be restricted to tech industry only,
many financial and manufacturing firms faced the same dilemma. Some major
banks in US bought out smaller banks in order to eliminate the competition and
survive in a cut throat market. All these changes and effect of external factors
forced these companies to restructure and

Limited Liability: One of the key reasons for forming a corporation is the
limited liability protection provided to its owners. Because a corporation is
considered a separate legal entity, the shareholders have limited liability for
the corporation's debts. The personal assets of shareholders are not at risk
for satisfying corporate debts or liabilities.

Corporate Tax Treatment. Since a corporation is a separate legal entity, it

pays taxes separate and apart from its owners (at least in the typical C
corporation). Owners of a corporation only pay taxes on corporate profits paid
to them in the form of salaries, bonuses, and dividends. The corporation pays
taxes, at the corporate rate, on any profits.

Attractive Investment. The built-in stock structure of a corporation makes

it attractive to investors.

Capital Incentive. The stock structure also allows corporations to attract

key and talented employees by offering an ownership interest in the form of
stock options or stock.

Owner/Employee. A business owner who works in his or her own business

may become an employee and thus be eligible for reimbursement or
deduction of many types of expenses, including health and life insurance.

Operational Structure. Corporations have a set management structure.

Shareholders are the owners of a corporation, who elect a Board of Directors,
which then elects the officers. Other than the election of directors,
shareholders do not typically participate in the operations of the corporation.
The Board of Directors is responsible for the management of and exercising
the rights and responsibilities of a corporation. The Board sets corporate
policy and the strategy for the corporation. The Board elects officers, usually

a CEO, vice president, treasurer and secretary, to follow the policies set by
the Board and manage the corporation on a day-to-day basis. In a small
corporation, the lines between the shareholders, Board of Directors, and
officers tends to blur because the same people may be serving in all
capacities.

Perpetual Existence. A corporation continues to exist until the

shareholders decide to dissolve it or merge with another business.

Freely Transferable Shares. Shares of corporations are generally freely

transferable because as a separate entity, the existence of a corporation is
not dependent upon who the owners or investors are at any one time. A
corporation continues to exist as a separate entity and is not terminated or
dissolved even when shareholders dies or sell their shares. Shares of
corporations are freely transferable unless shareholders have "buy-sell"
agreements limiting when and to whom shares may be sold or transferred.
Also, securities laws may restrict the transferability of shares.

Disadvantages of corporation

Fees. It costs money to incorporate. There are typically four types of fees,
including: a fee to file the articles of incorporation with the secretary of state;
a first year franchise tax prepayment; fees for various governmental filings;
and attorney fees. But every year tens of thousands of businesses choose to
incorporate online without the use of an attorney. For example, basic
incorporation before filing fees at a site like LegalZoom.com costs just $99.

Formalities. The proper corporate formalities of organizing and running a

corporation must be followed in order to receive the benefits of being a
corporation.

Paperwork. A huge aspect of the corporate formalities that must be

followed consists of paperwork. Reports and tax returns must be compiled
and filed in a timely fashion; business bank accounts and records must be
maintained and kept separate from personal accounts and assets; records
must be kept of corporate actions, including meetings of shareholders and
Board of Directors; and licenses must be maintained.

Disclosure of Names of Corporate Officers and Directors. Most states do not

require that names of shareholders be a matter of public record; however,
many states require that the names and addresses of corporate officers and

directors be listed on one or more documents filed with the Secretary of

State.

Dissolution. Since corporations have a perpetual existence, states provide

a mechanism for dissolving a corporation and liquidating its assets.
Dissolution does not happen automatically. A corporation can be dissolved
voluntarily or involuntarily. A corporation's officers and directors are charged
with responsibility for dissolving the corporation, including gathering
corporate assets, paying creditors and outstanding claims, and distributing
remaining assets to shareholders.

Tax Consequences. C corporations have potential double tax

consequences-once when the company makes its profit, and a second time
when dividends are paid to shareholders. S corporations can mitigate this tax
issue.

Differences Between Sole Partnership and

Corporation
A sole proprietorship is a business that has a single owner who is responsible for
making decisions for the company. A partnership consists of two or more individuals
who share the responsibility of running the company. A corporation is one of the
most recognizable business structures and has a separate identity from the owners
of the company. One or more owners may participate as shareholders of a
corporation.

Formation
A partnership business automatically begins when two or more people decide to go
into business. Sole proprietorships begin automatically when a single business
owner decides to open a business. There are no documents to file to begin a sole
proprietorship or a partnership. However, businesses are required to file articles of
incorporation, also known as a certificate of formation, to legally form a corporation
in any state. Each state charges a fee, which varies from state to state, to file
articles of incorporation. In addition, corporations are required to register with each
state where the company intends to make business transactions. This requirement
is not imposed on sole proprietorships or partnerships.

Taxation
Partnerships and sole proprietorships are referred to as pass-through entities. This is
because sole proprietors partners in a partnership report their share of company
profits and losses directly on their personal income tax return. and partners in a
partnership report their share of company profits and losses directly on their
personal income tax return. Sole proprietorships and partnerships are not required

to file business taxes with the Internal Revenue Service. Corporations are subject to
double taxation. This occurs when the corporation pays taxes on the company's
profits at the business level, and shareholders pay taxes on income received from
the corporation on their personal tax return.

Structure
Corporations have a structure consisting of shareholders, directors, officers and
employees. Every corporation must select at least one person to serve on its board
of directors. The board of directors is responsible for allocating the company's
resources and increasing the shareholders' profits. Officers are required to manage
the day-to-day activities of the company and implement the decisions made by the
company's shareholders and directors. Sole proprietorships and partnerships have a
more informal structure that does not require the selection of officers and directors.
Sole proprietors have full control over every aspect of their business, whereas
partnerships and corporations have to vote on important company issues.

Formalities
Partnerships and sole proprietorships have far less paperwork and fewer ongoing
formalities to adhere to in comparison to a corporation. Corporations are required to
hold at least one annual meeting, while sole proprietorships and partnerships do not
have to hold company meetings. A corporation must keep strict financial records
and keep a ledger detailing how the company reached certain decisions. Unlike a
corporation, sole proprietorships and partnerships are not required to file annual
reports with the state or create financial statements.

Other hand,
While cash is always important to a business, there are critical times when access to
cash can make or break the business. One of these critical times is when a company
is growing. A growing company needs cash to do things like purchase inventory,
extend credit to new customers, and purchase additional equipment. Another
critical time is when there is a difficult economy. During a recession, customers take
longer to pay and inventory takes longer to sell. As a result, a company needs
access to cash in order to continue making required payments to keep the business
operating.
Life seems uncomplicated for a sole proprietor. A sole proprietorship begins
whenever someone just starts a business in his or her own name. A small fee would
be required if the owner is doing business as (dba) an assumed name. All of the
earnings of the business are reported on the business owners individual tax return
(Schedule C). In a sole proprietorship, the owner has 100% control of the
business. Life is good until the owner needs cash.
First of all, a sole proprietorship is very limited in the ways it can obtain cash. By
definition, a sole proprietorship cant raise funds by selling ownership in the

business to someone else (as it can only have one owner). Unless the owner has a
large amount of cash available, a loan is usually the only way for a sole
proprietorship to obtain necessary funds.
But there are also characteristics of a proprietorship that can add to the difficulties
of loans. A sole proprietorship does not outlive its owner. If the owner dies or
decides to give up on the business, the business discontinues. A prudent lender
would require collateral for the loan in case something happens to the owner. In a
sole proprietorship, the owner is personally responsible for any losses. If the
company fails, the owner would be held personally liable for the loan.

A corporation is not limited to one owner. While sole proprietors are limited to
their own investment dollars, the ownership in a corporation can be easily divided.
Ownership shares of a corporation are set up and sold to any number of owners.
Owners can only lose the amount of money they invest in the business. In most
instances, if a company fails, owners wont be required to pay the corporations
vendors and creditors who are owed money from their personal assets. This reduces
the risk so investors are more willing to invest in the company.
As a corporation has a separate life of its own, the business doesnt fizzle when
one owner is no longer involved.
These characteristics promote investment in the corporation and improve the
access to necessary funds when the company needs them.
The bad news is that there are costs which corporations have which proprietorships
dont have. First, there are costs related to incorporating. Depending on the state in
which the business incorporates, it can cost between $50 and $350. If an attorney is
involved, the costs are usually between $500 and $5,000. Also, filing and paying
taxes will become more complicated so there will be additional annual expenses.
Evidence appears to show the benefits greatly outweigh the costs. Although the
vast majority of businesses in the United States are sole proprietorships, most of the
business earnings in this country come from corporations. Incorporating can help
businesses grow through the difficult times.
While life may seem simple and uncomplicated for a sole proprietor, if you have big
dreams for your business, incorporating will help you in the long run.

Conclusion
As well as we are briefly discussed about the topic distinguish among sole
partnership and corporation. Here we are showing different type of contents among
the definition, Merits or Advantage, Demerits or Disadvantage of partnership and
the definition, Merits or Advantage, Demerits or Disadvantage of corporation. Then

we are briefly discuss about the whole distinguish among the sole partnership and
corporation.
Finally we think its difficult to make between weather you want to start a sole
partnership and corporation since both have their own sets of advantages and
disadvantages. it greatly depends on the amount of responsibility and control you
are willing to take for your business in relation.