Business Structure Alternatives |
| Issues to consider |
Sole proprietorship |
C Corporation (Regular corporation) |
S Corporation (Sub-chapter S corporation) |
General partnership |
Limited partnership |
Limited-liability company (LLC) |
| Ownership rules |
One owner. |
Unlimited number of shareholders with no limit on the classes of stock. |
Up to 75 shareholders are allowed. Only one class of stock is allowed. |
Unlimited number of general partners. |
Unlimited numbers of general and limited partners are allowed. |
Unlimited numbers of “members” are allowed. |
| Liability of owners |
Unlimited liability for obligations of the business. |
Generally, no personal liability for obligations of the corporation. |
Generally, no personal liability for obligations of the corporation. |
All general partners are fully liable for obligations of the business. |
Unlimited liability for the general partners and no personal liability for the limited partners. |
Generally, no personal liability for obligations of the entity. |
| Tax treatment |
Entity is not taxed, all income and losses passed through to owner. |
Corporation is taxed at the corporate level. Shareholders are taxed on any dividends received. |
Entity is not taxed; profits and losses are passed through to the shareholders. |
Entity is not taxed, all income and losses passed through to partners. |
Entity is not taxed; profits and losses are passed through to the general and limited partners. |
Entity is not taxed; profits and losses are passed through to the members. |
| Control and management |
Sole proprietor manages the business. |
Board of Directors has overall management responsibility with officers having day-to-day responsibility. |
Board of Directors has overall management responsibility with officers having day-to-day responsibility. |
General partners have equal management rights unless they decide otherwise. |
General partner manages the business subject to the Limited Partnership Agreement. |
The Operating Agreement describes how it to be managed. A Manager is usually designated to manage the business. |
| Capital contributions |
Sole proprietor makes any capital contributions as needed.
Easiest. |
Shareholders usually buy stock in the corporation. Corporation can issue common and preferred stock.
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Shareholders usually buy stock in the one class of stock issued by the corporation. |
General partners contribute money or services to business and receive interests in profits and losses.
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Both general and limited partners contribute money or services and receive interests in the profits and losses. |
The members typically contribute money or services to the LLC and receive an interest in the profits and losses. |
| Ease of establishing |
Easiest. |
Must file Articles of Incorporation with the Secretary of State. |
Must file Articles of Incorporation with the Secretary of State. |
No filing. But a partnership agreement is needed. |
File an application with the Secretary of State. |
File Articles of Organization with the Secretary of State. |