Entity Comparison Table
Entity Comparison Table
Our Entity Comparison Table allows you to compare the attributes of various business forms including the:
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Sole Proprietorship; |
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General Partnership; |
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Limited Partnership; |
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C Corporation; |
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S Corporation; and |
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Limited Liability Company. |
| Type of Business |
Sole Proprietorship |
Partnerships |
Corporations |
Limited Liability Company |
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|---|---|---|---|---|---|---|
General |
Limited |
C Corp |
S Corp |
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| Definition | A business owned and operated by one person for profit. | Two or more people who jointly own or operate a business for profit | Two or more people who jointly own a business for profit consisting of at least one “general partner” who manages the partnership while subject to unlimited personal liability and at least one “limited partner” who is a passive investor with no management rights and has limited liability. | A corporation is a legal entity separate and distinct from its owners. It is considered a limited liability entity, as none of the owners are typically liable for the corporation’s debts by virtue of being a shareholder. A “C corporation” is a corporation that has not made an election to be an “S corporation.” | Functions in the exact manner as a regular C corporation except that it is taxed differently. It is considered a pass through entity. | An unincorporated business entity that combines (1) the limited liability protection offered by a corporation and (2) pass through tax treatment associated with the partnerships and S-corporations. |
| Who Owns Business? | Sole Proprietor | Partners | Partners | Shareholders | Shareholders | Members |
| Ease of Formation | If necessary, acquire licenses and permits, register fictitious name, and obtain taxpayer identification number. | Formation of a general partnership requires no formal filings and may be express, implied, oral, or written. Nevertheless, a written agreement concerning the terms and conditions of the business venture should preferably be drafted in writing. Must acquire taxpayer identification number. If necessary, register fictitious name. | Unlike general partnerships, limited partnerships may only be created where: (1) there is a written agreement among the partners; and (2) a “certificate of limited partnership” is filed with the Secretary of State | Forming a corporation requires filing articles of incorporation with the Secretary of State, electing directors, appointing officers, preparing and adopting bylaws, issuing stock to the shareholders, and obtaining taxpayer identification number. Within 90 days after filing the articles, the LLC must file a Statement of Information with the Secretary of State. After incorporation, corporate formalities must be followed (e.g., annual minutes). | Same as C corporation. Formation also requires that certain qualifying criteria are met and file a timely (within 2 ½ months of first taxable year) “S election” with IRS. | File articles of organization with the Secretary of State. Adopt operating agreement, and file other necessary documents with Secretary of State. Must acquire taxpayer identification number. Within 90 days after filing the articles, the LLC must file a Statement of Information with the Secretary of State. |
| Period of Existence | Terminates at will or on the death of the owner. | Terminates by agreement, or by death or withdrawal of partner, unless there is a partnership agreement to the contrary. | Continues until formal dissolution. Most stable form of business. Not affected by death or disaffiliation of shareholder. | May terminate by agreement, or withdrawal of a member, depending upon operating agreement. | ||
| Taxes | Profits are taxed once. Profit and loss are reported on the owner’s individual state and federal income tax returns | Profits are taxed once. Each partner reports his or her share of the profit and loss on his or her individual state and federal income tax returns. Partnership files an information return. | Profits are subject to double taxation, once at the corporate level, and again at the shareholder level. | Profits are taxed once. Each shareholder reports his or her share of profit and loss on individual income tax returns. S corp. does not pay tax, with some exceptions. | Each member reports his or her share of the profit and loss on his or her individual income tax returns. It is taxed like a partnership or an S corp. An LLC also has the option of being taxed like a corporation | |
| Pass Through Income/Loss | Yes | Yes | No | Yes | Yes | |
| Deductibility of Business Losses | Owner may use losses to deduct other income on individual tax returns (subject to active-passive investment loss rules that apply to all businesses) | Partners may use losses to deduct other income on individual tax returns if “at risk” for loss or debt | Corporation may deduct business losses (shareholders may not deduct losses | Shareholders may deduct share of corporate losses on individual tax returns, but must comply with special limitations | Follows sole proprietorship, partnership or corporate loss rules depending on tax status of LLC | |
| Double Taxation | No | No | Yes | No | No | |
| Raising Capital | Sole proprietor contributes whatever capital needed; business loans may also be used | The partners typically contribute money or services to the limited partnership, and receive an interest in profits and losses; business loans may also be used | Sell shares of stock (may offer various classes of shares); business loans; may go public if substantial infusion of cash needed | Generally same as C corporation – but can’t have foreign, partnership or corporate shareholders; must limit number of shareholders to 75; can’t offer different classes of stock to investors except for shares with different of no voting rights | The members typically contribute money or services to the LLC, and receive an interest in profits and losses; business loans may also be used | |
| Do State and Federal Securities Laws Apply? | Generally not | Generally not | Issuance or transfer of stock subject to state and federal securities laws | Generally not, if all members are active in the business | ||
| Fringe Benefits | Sole proprietor may set up IRA or Keogh retirement plan; may deduct all or a portion of medical insurance premiums | General partners and other employees may set up IRA or Keogh plans; may deduct all or a portion medical insurance premiums | Full tax-deductible fringe benefits for employee-shareholders; may deduct medical insurance premiums and reimburse employees’ medical expenses | Same as general partnership, but employee-shareholders owning 2% or more of stock are restricted from corporate fringe benefits under partnership rules | Can get benefits associated with sole proprietorship, partnership or corporation, depending on tax treatment of LLC | |
| Management | Owner has full control of management and operations | Typically each partner has an equal management rights unless otherwise agreed | General partners have all management rights. Limited partners have no management rights. Limited partners lose liability protection if they partake in management. | Shareholders elect Directors, who manage corporation. Directors appoint officers. Rigid structure required. | Manager or Member managed. Flexibility permits parties to customize management structure. | |
| Liability | The owner’s personal assets are at risk. | Each partner’s personal assets are at risk. | General partners’ personal assets are at risk. A limited partner is liable only to the extent of his or her investment. | Limited to corporate assets, except:
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Similar to rules for corporations. | |
| Dissolution | Easiest form of business to dissolve. Pay debts, taxes, and claims against business. | Pay debts, taxes, and claims against business. Settle partnership accounts. | Pay debts, taxes, and claims against business. Settle partnership accounts. File cancellation of certificate with the Secretary of State | Obtain shareholder approval to dissolve. File certificate of dissolution with the Secretary of State. Pay debts, taxes, and claims against business. Distribute corporate assets to shareholders. | Pay debts, taxes, and claims against business. Distribute remaining assets to members. File articles of dissolution with the Secretary of State. | |
| Gain on distribution of assets is subject to double taxation. | Gain on distribution of assets is taxed once, with some exceptions. | |||||