What Is the Difference Between Having an Incorporated Business and a Personal Business?

by Christopher Carter

The decision of whether or not to incorporate a business may be perplexing to many business owners. As explained on the Rural Law website, some deciding factors to consider include the purpose and nature of the company and the financial requirements to operate the business. Partnerships and sole proprietorships are viewed as a personal business, while an incorporated business may refer to a corporation or a limited liability company.


An incorporated business provides the owners of the company with limited liability protection against debts and other obligations incurred by the business. This means the business creditors of an incorporated business can't pursue the personal assets of a shareholder, member, manager or officer in an effort to recover business debts. Since an incorporated business acts as a distinct and separate legal entity, the company may accumulate its own debts, liabilities and assets. This offers a direct contrast to a personal business, in which the owners of the company have unlimited liability for debts and obligations of the company. A personal business isn't recognized as a separate entity from the owners of the business. This means the debts and liabilities of the company become the owner's personal debts and liabilities. Business creditors of a sole proprietorship and partnership may recover business debts and obligations by pursuing the personal assets of the owners.


Incorporated businesses must file paperwork with the state where the company operates. Furthermore, incorporated businesses must pay a fee to file formation documents with the state. Fees to form an LLC or corporation vary from state to state. As of 2010, it costs $300 to form an LLC or incorporate in the state of Texas. Sole proprietors and partnerships aren't required to file documents with the state to begin operating. A sole proprietorship forms when a single individual makes a business transaction. A partnership forms when two or more individuals agree to start a business.


An incorporated business may be subject to double taxation. A regular corporation, also known as a C corporation, pays taxes on company earnings at the corporation's tax bracket, and shareholders pay taxes on dividends received from the corporation. However, companies may avoid double taxation by forming an S corporation or an LLC. Owners of an LLC or an S corporation may pass their share of the company's profits or losses directly to their personal income tax return. Owners of a personal business put their share of company profits on their personal income tax return. This is the case for both partnerships and sole proprietorships.


A personal business may adopt any structure elected by the owners, or partners of the company. A sole proprietorship may have many employees and managers, but it may have only one owner to be considered a sole proprietorship. Furthermore, owners of a personal business tend to take an active role in operating a company. An incorporated business must identify individuals to serve as directors, officers and managers of the company. In most cases, a single individual may act as the director, shareholder and officer of a corporation. Furthermore, incorporated businesses must adhere to certain formalities such as filing annual reports and keeping minutes from company meetings. States don't impose formalities on partnerships or sole proprietors.


An incorporated business may last forever. Since an incorporated business acts as a separate legal entity, it will continue to exist regardless of who owns the business at a particular point in time. However, an incorporated business may indicate a dissolution date in its formation documents. In some cases, an LLC may dissolve automatically if a member dies or decides to leave the business. In other instances, an LLC may have an unlimited life. A personal business dies when the owner dies. This is certainly the case in a sole proprietorship. In many instances, a partnership dissolves when a partner dies, or withdraws from the company. However, with the proper written provisions such as a buyout agreement, a partnership may continue to operate even if a partner decides to sell his interest in the company.

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