The choice isn't limited to either incorporating or remaining a proprietorship. For instance, there is the alternative of operating as a partnership.
Following is a comparison between the two forms - corporation and partnership - with respect to the factors that will be most important.
General (Non tax) Considerations
For the term specified in the partnership agreement: death of a partner may dissolve it earlier.
A corporation continues until dissolved by law (unless a statute limits the time).
Has no separate entity from the partners.
Has entity separate from its stockholder. A corporation can sue and be sued, hold and deal in property.
General partners are individually liable for all partnership obligations: limited partners are usually liable only up to the amount of their capital contributions.
A stockholder has no individual liability; only his capital contribution is involved (exception: some state laws subject bank stockholders to double liability) shareholders may be liable if the "corporate veil" is pierced.
Change in interests may create a new partnership. Arrangements are necessary to end liability of ex-members.
Stock can ordinarily be sold or otherwise transferred at will.
Only by loan, or by new membership, or contributions of present members, or by remaking the firm.
A corporation raises capital by sale of new stock or bonds or other securities.
Unanimous agreement of partners usually required, involves problems of personality.
Corporate authority is centered in its board of directors, acting by majority agreement.
Depends on standing of individual partners; partnership interests usually can't be pledged.
As separate entity, a corporation has credit possibility apart from stockholders: in close corporation. stock is available as collateral.
By partners; they are responsible (except silent partners).
Stockholders are not responsible: managers are employed.
Partners have leeway in their actions except to the extent limited by the Partnership agreement (occasionally by law).
A corporation is limited to the powers (express and implied) in its charter from the state; may be subjected to judicial consideration.
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