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Common Entities

This table provides an at-a-glance reference to how the most common business entity types compare in a number of key characteristics. To compare all entities use the Entity Comparison Tool or view the entity comparison table in PDF format.

Characteristics
Sole Proprietorship
C
Corporation
S
Corporation
Limited Liability Company
Formation
No state filing required.
State filing required.
State filing required.
State filing required.
Duration of Existence
Dissolved if entity ceases doing business or upon death of the sole proprietor.
Perpetual
Perpetual
Dependent on the requirements imposed by the state of formation.
Liability
Sole proprietor has unlimited liability.
Shareholders are typically not responsible for the debts of the corporation.
Shareholders are typically not responsible for the debts of the corporation.
Members are not typically liable for the debts of the LLC.
Operational Requirements
Relatively few legal requirements.
Board of directors, annual meetings and annual reporting required.
Board of directors, annual meetings and annual reporting required.
Some formal requirements but less formal than corporations.
Management
Sole proprietor has full control of management and operations.
Managed by the directors, who are elected by the shareholders.
Managed by the directors, who are elected by the shareholders.
Members have an operating agreement that outlines management.
Taxation
Not a taxable entity. Sole proprietor pays all taxes.
Taxed at the entity level. If dividends are distributed to shareholders, dividends are also taxed at the individual level.
No tax at the entity level. Income/loss is passed through to the shareholders.
If properly structured there is no tax at the entity level. Income/loss is passed through to members.
Pass Through Income/Loss
Yes
No
Yes
Yes
Double Taxation
No
Yes, if income is distributed to shareholders in the form of dividends.
No
No
Cost of Creation
None
State filing fee required.
State filing fee required.
State filing fee required.
Raising Capital
Often difficult unless individual contributes funds.
Shares of stock are sold to raise capital.
Shares of stock are sold to raise capital.
Possible to sell interests, though subject to operating agreement restrictions.
Transferability of Interest
No
Shares of stock are easily transferred.
Yes, but must observe IRS regulations on who can own stock.
Possibly, depending on restrictions outlined in the operating agreement.

 

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Partnership Entities

This table provides an at-a-glance reference to how partnership-related business entity types compare in a number of key characteristics. To compare all entities use the Entity Comparison Tool or view the entity comparison table in PDF format.

Characteristics
Sole Proprietorship
General Partnership
Limited Partnership Limited Liability Partnership
Formation
No state filing required.
Agreement between two or more parties. No state filing required.
State filing required. State filing required. In CA & NY the use of LLP is limited to accountants & lawyers.
Duration of Existence
Dissolved if entity ceases doing business or upon death of the sole proprietor.
Dissolves upon death or withdrawal of a partner unless safeguards are specified in a partnership agreement.
Perpetual Dependent on the requirements imposed by the state of formation.
Liability
Sole proprietor has unlimited liability.
Partners have unlimited liability.
At least one general partner has unlimited liability. Partners are not typically responsible for the debts of the LLP.
Operational Requirements
Relatively few legal requirements.
Relatively few legal requirements.
Some formal requirements, but less formal than corporations. DE, GA, PA, TX & VA require an LLP to carry insurance or an escrow account to cover liabilities.
Management
Sole proprietor has full control of management and operations.
Typically each partner has an equal voice, unless otherwise arranged.
Limited partners are excluded from management unless they serve on the board of directors.

All partners have the right to manage the business directly.

Taxation
Not a taxable entity. Sole proprietor pays all taxes.
Not a taxable entity. Each partner pays tax on his/her share of income & can deduct losses against other sources of income.
Files taxes as separate entity, must meet certain criteria to avoid being taxed as a corporation. Files taxes as a separate entity, must meet certain criteria to avoid being taxed as a corporation.
Pass Through Income/Loss
Yes
Yes
Yes, if requirements are fulfilled. Yes, if requirements are fulfilled.
Double Taxation
No
No
No No
Cost of Creation
None
None
State filing fee required. State filing fee required.
Raising Capital
Often difficult unless individual contributes funds.
Contributions can be made from partners and more partners can be added
Contributions can be made from partners and more partners can be added. Contributions can be made from partners and more partners can be added.
Transferability of Interest
No
No
Yes, pending approval of other limited partners and the general partners. Possible, dependent on operating agreement restrictions.

 

Copyright Notice: Visitors to the BizFilings website may not reproduce, republish or redistribute material found on the website in any form without the express written consent of BizFilings. For all requests for use of copyrighted material from the BizFilings website, please contact marketing@bizfilings.com.

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Did You Know?

Did You Know?
Corporations often gain tax advantages such as: the deductibility of health insurance premiums paid on behalf of an owner-employee; savings on self-employment taxes, as corporate income is not subject to Social Security, Workers Compensation and Medicare taxes; and the deductibility of other expenses such as life insurance.

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