| |
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. |
