How were corporations different form partnerships?

Answer 1

Originally a partnership could not be formed by trusts, estates, or corporations however however after years of case laws and common business practices a partner can be an individual, turst, estate, or corporation.

Answer 2

In both corporations and partnerships, the ownership of the company is shared among different people, shareholders in the case of corporations and partners in the case of a partnership. But there are two major differences between corporations and partnerships in the way their owners are treated by law:

A corporation is a separate legal entity from the people who own it. If the corporation owes money, whether due to ordinary business problems or an insurance liability or a fine, the shareholders do not have to contribute any money to pay off the debt. In a partnership, the general partners are liable for any money that the partnership owes - in fact, each general partner is "jointly and severally liable" for the full amount, meaning that even if just one partner is sued, he or she would have to pay until the full amount of the debt is satisfied.

On the other hand, there is a major disadvantage to owning a piece of a corporation, because the profits of the corporation are subject to corporate income tax, and then any amounts distributed to the shareholders are taxed as individual income to the shareholders. In a partnership, the taxing authorities basically treat the partnership as if it didn't exist, and tax the income of the partnership only as individual income as it is distributed to the partners.

About 25 years ago, a new form of business entity was formed, called a "limited liability company" or a "limited liability partnership". This combined the best features of both corporations and partnerships, with only one level of taxation and without liability of the partners for the debts of the company.