|
Comparison Factors |
Sole Proprietorship (SP) |
General Partnership (GP) |
Limited Liability Company (LLC) |
S Corporation (S Corp) |
C Corporation - General Stock (C Corp) |
|
Business formation |
City tax license may be required. No state filing required |
No state filing required. Some states allow GP’s to file at state agency. An Agreement between two or more parties. Partnership agreement should be created |
Required to file formation document with the State filing agency. Most states require an Operating Agreement |
Required to file formation document with the State filing agency. Most states require annual meetings and bylaws. Must elect S status through the IRS, additional filing required |
Required to file formation document with the State filing agency. Most states require annual meetings and bylaws |
|
Size |
One person ownership |
Two or more person ownership |
Most states allow single member LLC’s but some require 2 or more members |
Up to 75 members/ shareholders |
Unlimited |
|
Length of Existence |
Sole proprietorship either ceases doing business or dies |
Depending upon partnership agreement. Typically death or withdrawal of a partner dissolves the GP |
Some states allow LLC’s to have a perpetual existence. Others depend upon the state’s requirements |
Perpetual |
Perpetual |
|
Liability |
SP has unlimited liability and can lose personal assets |
General Partners are equally liable or less the partnership agreement states otherwise |
Members are not liable for debts accrued by the company or less a member secured the debt with a personal asset |
Shareholders are typically not liable for the debts of the corporation. Some officers can be held liable if there is fraud or severe mismanagement. |
Shareholders are typically not liable for the debts of the corporation. Some officers can be held liable if there is fraud or severe mismanagement |
|
Operational Procedures |
Easiest with few legal requirements |
Typically GP’s have few legal requirements |
Most states have some formal requirements like annual reports but are typically less than a corporation |
Annual meetings, filings, and reporting required. Board of Directors and Officers must be maintained. |
Annual meetings, filings, and reporting required. Board of Directors and Officers must be maintained |
|
Start up cost |
Cost of business tax license |
Cost of business tax license |
State filing fee is required. |
State filing fee is required. |
State filing fee is required. |
|
Management |
SP is in complete control of managing operations |
Or less the partnership agreement states otherwise, each partner has equal management authority |
Management is outlined in the LLC’s Operating Agreement. |
Officers manage day to day corporate activities. Directors manage the officers and the overall company. Directors are elected and therefore managed by the shareholders |
Officers manage day to day corporate activities. Directors manage the officers and the overall company. Directors are elected and therefore managed by the shareholders |
|
Taxation |
Taxed Once |
Taxed Once |
Taxed Once |
Taxed Once |
Double; both the corporation and shareholders are taxed |
|
Pass through taxation for both income and loss |
Yes |
Yes |
Yes |
Yes |
No |
|
Interest Transferability |
No. Or less business is sold to another party |
No. |
Depends upon the operating agreement |
Yes. Some IRS regulations on stock ownership |
Shares of stock are easily transferred |
|
Raising Capital |
Hard to get outside capital. Owner typically contributes all funds |
Partners contribute capital and more capital can be raised by adding new partners |
Some operating agreements allow interests to be sold |
S Corps can sell stock to raise capital |
C Corps can sell stock to raise capital |
|
Dissolution |
Easiest |
Easy |
Complex. Requires filing dissolution document with state filing agency. Some states require a tax clearance prior to dissolution. |
Most Complex. Requires filing dissolution document with state filing agency. Some states require a tax clearance prior to dissolution. |
Most Complex. Requires filing dissolution document with state filing agency. Some states require a tax clearance prior to dissolution. |
|
Examples |
Mom & Pop Ice cream shop |
Land Developer |
Real Estate Investment Property. Motion Picture. Any type of business depending upon specific state restrictions. |
Small business or Family business such as a print shop, Pizza Parlor, or Interior Design. |
Public Corporation. Software company, telecommunications company, etc. |