IRA Financial Group
IRA Financial Group
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ENTITY COMPARISON CHART

A business can take a number of forms, such as a limited liability company or partnership, a “C” corporation, or an “S” corporation. When one starts a business, they must choose the form in which they will operate. Both non-tax and tax considerations should guide the choice. Until recently, the choice was essentially between the corporate form of doing business, and the partnership form (either general or limited partnership). In recent years a third alternative has become available in all states, the LLC.

 

LLC

Sole Proprietorship

“C” Corporation

“S” Corporation

General Partnership

Formation

File Articles of Organization with State agency

Automatically formed upon start of business. No filings necessary

File Certificate of Formation with State agency

File Certificate of Formation with State agency

Two or more persons intend to operate a business. No filings necessary

Management

Can be manager or member managed

Owner managed. May be manager managed

Corporate management structure is fixed. Shareholders can be officers and directors

Corporate management structure is fixed. Shareholders can be officers and directors

Must be partner managed. Cannot be manager managed

Liability

Limited liability for all members. Members not liable for LLC debts. Piercing the LLC veil possible

Owner personally liable. Owner liable for all debts.

Limited liability for all shareholders. Shareholders not liable for corporate debts. Piercing the corporate veil allowed

Limited liability for all shareholders. Shareholders not liable for corporate debts. Piercing the corporate veil allowed

All partners are personally liable. All partners are jointly and severally liable for all partnership debts. No veil piercing theories

Tax Treatment

Generally treated as a partnership or sole proprietorship. Subject to one level of tax. May be taxed as a “C” or “S” corporation. Distributions may be subject to self-employment income tax.

Always taxed as a sole proprietorship

Generally taxed as a “C” corporation. Shareholders subject to double taxation. No self-employment income tax on distributions

Always taxed as a “S” corporation - one level of tax - but can lose “S” status. Shareholders not subject to double taxation. No self-employment income tax on distributions in most cases

Always taxed as a partnership – one level of tax.

Corporate Maintenance

Very few corporate formalities. Significantly easier to maintain than a corporation.

None

Formality requirements (e.g. annual reports, minutes, meetings) are required to maintain corporate status.

More formality requirements than an LLC

None

Owners

One or more members. Can have single member LLC. No limit on maximum number of members

Single owner only. Cannot have two or more owners

One or more shareholders. Can have single owner corporation. No limit on maximum number of shareholders

One or more shareholders. Can have single owner corporation. Limit to hundred shareholders. Limit in type of shareholders

Two or more partners required. Cannot have single partner partnership. No limit on maximum number of members

Ownership Interests

May share in profits and losses. May participate in management. Interest may be treated differently. Restrictions can prevent interest from being assigned or transferred

Entire business owned by owner. All property is personal property of owner. All profits and losses belong to owner. All management controlled by owner

May receive dividends. May participate in management. Free transferability of stock. Each stock class must be treated identically but can have different classes of stock

May receive dividends. May participate in management. Free transferability of stock. Limited to one class of stock but can have different voting rights

Right to share in profits and losses. Right to participate in management. Interest may be assignable.