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Characteristics |
Sole Proprietorship |
General Partnership |
Limited Liability Company |
S Corporation |
Corporation |
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Formation |
No state filing required |
Agreement between two or more parties. No state filing required. |
State filing required |
State filing required |
State filing required |
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Duration of Existence |
Dissolved if sole proprietor ceases doing business or dies |
Dissolves upon death or withdrawal of a partner unless safeguards are in place in a partnership agreement. |
Dependent on the requirements imposed by the state of formation. |
Perpetual |
Perpetual |
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Liability |
Sole proprietor has unlimited liability |
Partners have unlimited liability |
Members not typically liable for the debts of the LLC |
Shareholders are typically not personally liable for the debts of the corporation |
Shareholders are typically not personably liable for the debts of the corporation |
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Operational Requirements |
Relatively few legal requirements |
Relatively few legal requirements |
Some formal requirements but less formal than corporations |
Board of directors, officers, annual meetings, and annual reporting required |
Board of directors, officers, annual meetings, and annual reporting required |
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Management |
Sole proprietor has full control of management and operations |
Typically each partner has an equal voice, unless otherwise arranged |
Members have an operating agreement that outlines management |
Managed by the directors, who are elected by the shareholders |
Managed by the directors, who are elected by the shareholders |
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Taxation |
Not a taxable entity. Sole proprietor pays all taxes |
Not a taxable entity. Each partner pays tax on his/her share of income and can deduct losses against other souces of income |
If properly structured there is no tax at the entity level. Income/loss is passed through to members. |
No tax at the entity level. Income/loss is passed through to the shareholders |
Taxed at the entity level. Also, If dividentds are distributed to shareholders, dividend income is taxed at the individual level. |
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Pass Through Income/Loss |
Yes |
Yes |
Yes |
Yes |
No |
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Double Taxation |
No |
No |
No |
No |
Yes, if income is distributed to shareholders in the form of dividends. |
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Cost of Creation |
None |
None |
State filing fee required |
State filing fee required |
State filing fee required |
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Raising Capital |
Often difficult unless individual contributes funds |
Contributions can be made from partners, and more partners can be added |
Possible to sell interests, though subject to operating agreement restrictions |
Shares of stock are sold to raise capital |
Shares of stock are sold to raise capital |
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Transferability of Interest |
No |
No |
Possibly, depending on restrictions outlined in the operating agreement |
Yes, but must observe IRS regulations on who can own stock |
Shares of stock are easily transferred |
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