A corporation refers to a business started by more than one person that seeks to sell shares to investors. A partnership also has more than one owner and both profits and liability are shared. The main difference between a partnership and a corporation is liability.

The liability of each member is protected in a corporation as personal risk is limited by the investment. A partnership, like a sole proprietorship, does not offer limited liability protection. A limited liability partnership, however, has more than one partner who is licensed in a business such as an accountant or lawyer.

While a general partnership provides no liability protection and limited investment opportunities, it is easy to create and involves simple tax reporting. Each partner's taxes are based on their own tax levels. All partners must reach an agreement about the percentage each partner holds in ownership as well as what roles each will have in the business. A lawyer is usually involved in a partnership agreement.

A limited liability company could be an individual, a partnership, or a corporation and is often thought of as being halfway between a corporation and a partnership. The company does not hold a member liable, just like a corporation, but also allows for pass-through taxation and a less rigid structure of operating than a corporation does.

Most states used to require a limited liability company to have at least two members. That has changed, however, as most states today now allow sole owner limited liability companies due to changes in IRS regulations. Rules regarding partnerships and corporations are ever-changing.

A C-Corporation is a for-profit, state corporation. The corporation is taxed and pays taxes separate from its shareholders. The shareholders have ownership of the corporation and elect the Board of Directors. Double taxation can occur in a C-Corporation as a corporation must pay taxes on its profits as well as pay taxes again when the profits are paid out as dividends. However, double taxation is sometimes avoided by paying shareholders salaries with fringe benefits rather than dividends.

An S-Corporation is a C-Corporation that receives "S-Corporation Status" after filing a 2553 IRS form. S-Corporations are taxed in a pass-through manner rather than as a regular corporation taxed on its own basis. The pass-through taxation allows the shareholders to pay taxes like members in a partnership. The shareholders report the S-Corporation's profit or loss on their individual tax returns. Some states may require an additional filing form for "S-Corporation Status" along with the federal 2553 form.