What are the Key Differences Between a Partnership and a Company?

working together on project two young business partners working on computer

Robin Lamb | Published 20 February 2023 | Updated 20 February 2023

When starting a business with someone else, there are two main structures to consider – partnerships and companies. Understanding the differences between these organisational structures is crucial if you want to ensure your enterprise is set up for success. In addition, knowing the advantages and disadvantages of forming a partnership or company can help you decide which structure best meets your needs.

Nature of ownership

One of the critical differences between partnerships and companies is the nature of ownership. With a partnership, the participants are directly responsible for the business operations and the profits or losses. With a company, the business is its own legal entity, with shareholders owning parts of it. As a result, shareholders cannot be held personally responsible for resulting liabilities, and profits are divided among them according to their ownership stakes.

Organisation structure

A partnership is a business arrangement between two or more persons who agree to own and manage the venture. All partners contribute capital, share profits and losses, and are responsible for management decisions. On the other hand, a company is a formally organised business entity owned by shareholders, who may be one or many individuals. A company's profits are distributed among shareholders according to their ownership stakes and any agreements made when the company was created. In addition, each shareholder does not bear personal liability for debts taken on by the company.

Governance and management

Partnerships are usually managed by one partner or jointly by all. There is no specific structure for a partnership, so decisions must often be agreed upon by either consensus or majority rule. In contrast, the decisions of a company are made and managed independently according to the corporate governance laws and regulations of the country where it is located. This includes rules regarding who may serve on its board of directors, how many directors should be on the board, what powers they have, and how they should interact with shareholders.

Profit sharing and liability

In a partnership, profits must be shared amongst the partners. In contrast, shareholders typically own the earnings of a company. Similarly, liability for debts and obligations usually falls on the partners of a partnership. At the same time, shareholders have limited or no personal liability concerning the debts and obligations of the company. This is an important distinction: if a company goes bankrupt, say, due to mismanagement or other reasons, its directors and shareholders are not personally responsible for its debts and losses.

Duration and continuity

A partnership's duration and continuity highly depend on the partners involved. At the same time, companies have limited liability in this regard. This is because companies are "legal entities", meaning if one of its shareholders passes away or sells their shares, it does not affect the existence or continued operation of the company. In a partnership, however, one partner's departure can result in the dissolution of the entire entity.

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