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