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Sole Proprietorship |
General Partnership |
Limited Partnership |
C Corporation |
S Corporation |
Limited Liability Company (LLC) |
 Easy to Form |
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No formation requirements with the state. Will generally file a DBA (doing business as) form if using a
business name. Also generally required to obtain a business license |
By definition, must have at least two people. The relationship is defined in an agreement, generally
in writing. A Statement of Partnership may be filed with the state |
By definition, must have at least one general partner and one limited partner. The relationship is
defined in an agreement, generally in writing. Most states require registration, payment of a filing fee and
often payment of annual franchise taxes |
Articles of Incorporation start the legal existence of all corporations, but other required formation
documents include bylaws, minutes, and issuance of stock certificates to owners |
Articles of Incorporation start the legal existence of all corporations, but other required formation
documents include bylaws, minutes, and issuance of stock certificates to owners. |
Articles of Organization start the legal existence of an LLC. If it has multiple members (owners), an
operating agreement may be required, generally in writing. This is essentially a partnership agreement for the LLC. |
| Limited Liability of Owners |
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There is no distinction between the owner and the business. The owner is personally liable for all business debts |
All partners typically have unlimited liability for debts to third parties, though the partnership agreement
may alter this among the partners |
Liability of the limited partners is limited to their investments. General partners have unlimited liability |
Only the amount invested is at risk. Shareholders rarely have liability for the debts of the corporation |
Only the amount invested is at risk. Shareholders rarely have liability for the debts of the corporation |
Only the amount invested is at risk. Members rarely have liability for the debts of the LLC |
| Pass-through Taxation |
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Because there is no separateness between the owner and the business, all profits and losses of
the business flow through to the owner's personal tax return |
A general partnership is not taxed as an entity. All profits and losses flow through to the partners
to report on their personal tax returns based on their ownership percentages |
A limited partnership is not taxed as an entity. All profits and losses flow through to the partners
to report on their personal tax returns based on their ownership percentages |
The profits are taxed at the corporate level based on corporate tax rates. Any dividends paid to owners
are taxed again making double taxation an issue. |
An S Corporation is not taxed at the corporate level. All profits and losses flow through to the
shareholders to report on their personal tax returns based on ownership percentages |
An LLC may choose from among several tax classifications depending on the number of members and
their relationship (i.e., husband and wife). It can be a pass-through entity or even taxed as a C or S Corporation. |
| Continuous Life |
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Ends when the owner dies or sells the business |
Generally ends when a partnership interest is sold or when an agreed date for termination has
arrived unless at least two partners remain and agree to continue the partnership |
Generally ends when an agreed date for termination has arrived or other event for termination
occurs as provided in the limited partnership agreement |
By definition, corporation life is perpetual until action is taken to formally dissolve it
with the state. Changes in officers, directors, or shareholders don't cause the corporation to end |
By definition, corporation life is perpetual until action is taken to formally dissolve it with
the state. Changes in officers, directors, or shareholders don't cause the corporation to end. However,
S Corporation status may be lost if any of the requirements are no longer met |
An LLC may have perpetual existence like a corporation, but an operating agreement or Articles of Organization
may also provide for a specified termination date or number of years of existence. |
| No Restrictions on Ownership |
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By definition, there can only be one owner |
Two minimum but no maximum numbers. Partners can be individuals or other entities |
At least one general and one limited partner, but no maximum numbers for either. Partners can be individuals or other entities |
Shareholders may be individuals, other types of entities, trusts, non-resident aliens |
Maximum of 100 shareholders who must be individuals, certain trusts or estates; individuals must not be non-resident aliens |
No limit on number of members and no restriction on types of owners (unless LLC elects S Corporation status and then must meet all requirements) |
| No Restriction on Type of Business |
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A sole proprietor may operate any type of business |
General partnerships have no restrictions on the type of business they may operate |
A limited partnership is generally not permitted for professionals because all owners must be licensed
and have a right to participate in the business |
A regular business corporation may engage in any type of business, but many states have additional
requirements for banking, insurance, or other financial corporations. A Professional Corporation is
restricted to certain licensed professionals determined by each state. A nonprofit corporation must meet
certain requirements and may or may not be tax-exempt. |
Same as a Corporation, but does not apply to a nonprofit corporation because it does not have
shareholders and is not a for-profit business |
A regular business LLC may generally operate any type of business that a C Corporation could operate.
Many states have restrictions on certain licensed professionals forming an LLC. Some require forming a
Professional LLC, others require them to form a Professional Corporation |
| Easy Raising Capital |
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Typically restricted to the owner's personal assets |
Generally limited to the partners' personal assets. May be difficult to find additional
partners to bring new capital because of the unlimited liability and possible restrictions
in a partnership agreement on admitting new partners |
Generally limited to the partners' (both general and limited) personal assets. May be able to
sell additional limited partnership interests depending on provisions of the LP agreement |
The corporation may sell shares to investors to raise capital, subject to federal
and state securities' law requirements |
The corporation may sell shares to raise capital as long as it continues to meet
the requirements for its S Corporation status |
Generally limited to the members' assets. While the LLC is able to sell memberships to
raise capital like a corporation can sell shares, it is also subject to securities law requirements
plus the added factor that the LLC is a relatively new entity type and doesn't have the formal
structure of a corporation or the benefit of a corporation's more extensive statutory regulation
and court decisions |
