| 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. |
