| Entity
Characteristics |
Sole
Proprietorship
|
Partnership
|
Limited
Liability Company
|
S-Corporation
|
C-Corporation
|
| Requirements
for Creation |
No
state permission requirements
|
Parties
must agree to form partnership. No state
permission requirements.
|
Must
file with state for creation.
|
Must
file with state for creation.
|
Must
file with state for creation.
|
| Life
of Entity |
Life
of sole proprietor.
|
Death
of partner causes dissolution.
|
Generally
a fixed period (usually 30 years).
|
Unlimited
|
Unlimited
|
| Liability
to Parties Involved |
Unlimited
liability for sole proprietor.
|
Unlimited
liabilitiy for partners.
|
LLC
members not personally liable for
company debts.
|
Shareholders
not personally liable for corporate
debts.
|
Shareholders
not personally liable for corporate
debts.
|
| Formal
Requirements for Operation |
Few
legal requirements.
|
Few
legal requirements.
|
Some
requirements, but less than
corporations.
|
Board
of directors, officers, annual meetings,
and annual reports.
|
Board
of directors, officers, annual meetings,
and annual reports.
|
| Entity
Management Characteristics |
Sole
proprietor is the manager and operator.
|
Partners
generally have equal voice.
|
Members
agree to the form of management by
either members or hired management.
|
A
corporation is managed by the officers
and the board of directors, the
directors being elected by the
shareholders, and the officers being
appointed by the directors.
|
A
corporation is managed by the officers
and the board of directors, the
directors being elected by the
shareholders, and the officers being
appointed by the directors.
|
| Taxation
Issues |
There
is no taxable entity. The sole
proprietor pays taxes in the form of
income taxes.
|
Partners
pay taxes on their share of the income
and deduct losses against other sources
of income
|
Can
elect taxation method. For example, can
be taxed as a corporation or can elect
to have no company tax liability.
|
Corporation
has no tax liability. Taxes are paid on
an individual income tax level by the
shareholders when profits are passed in
the form of dividends.
|
Corporation
is taxed as well as are the individual
shareholders when corporate profits are
passed in the form of dividends (this is
known as double-taxation).
|
| Taxation
Method |
Income
tax on proprietor.
|
Income
tax on partner's share of partnership
income.
|
Can
elect taxation method. Generally no tax
at the company level.
|
Generally
no tax at the company level.
|
Profits
subject to double-taxation.
|
| Cost
of Entity Formation |
None
|
None
|
State
filing fees.
|
State
filing fees.
|
State
filing fees.
|
| Interest
Transfer Issues |
Individual
may sell.
|
Addition
of partners or additional sale of
partnership interests to existing
partners.
|
Sale
of member interests may take place
subject to company policy.
|
Shares
of stock may be sold to raise capital,
subject to federal and state securities
laws.
|
Shares
of stock may be sold to raise capital,
subject to federal and state securities
laws.
|
