Differences Between Sole Proprietorship, Partnership & Corporation

by Evan Mckinney; Updated September 26, 2017

There are a number of different types of business organizations an individual or a group can form. However, three of the most common types of business organizations are sole proprietorships, partnerships and corporations. These three types of businesses are similar in some ways, but a number of differences are important to note.

Formation

A sole proprietorship or a partnership may be formed without filing any formal paperwork. The creators of a corporation, however, must file a document known as the articles of incorporation.

Liability

The owner(s) of a sole proprietorship or a partnership may be held liable for any business activity and/or obligation. Corporate shareholders, however, usually are liable only for the amount they invested.

Record Keeping

Corporations are required to keep strict records of meetings and other similar administrative activities, while a sole proprietorship or a partnership typically is not required to do so.

Size

A sole proprietorship can have only a single owner, but a partnership or a corporation may have any number of owners.

Taxes

The owner of a sole proprietorship is required only to report the business’ earnings on her tax return, while a corporation or a partnership must file a separate return for the business.

About the Author

Evan Mckinney is a freelance technical writer with a Bachelor's degree in English from the University of Massachusetts at Lowell that has written a variety of different articles on topics ranging from business to video games.