Selecting Your Entity

Business Entity Comparison Chart

You are starting a new business and may be unsure of which entity is most appropriate for your business. Although, we cannot give you legal advice. Below is valuable information to help you make a decision. If you have any questions, please contact us.
 

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.