Nutshell Entity Comparison Table

ATTRIBUTES	SOLE PROPRIETORSHIP	PARTNERSHIP	C-CORPORATION	S-CORPORATION	LLC
Description:	No separate legal entity. A single individual doing business.	A separate legal entity. Two or more persons carrying on a business or trade and sharing risks and profits.	A separate legal entity incorporated under a state business corporation statute. This is the classic regular corporation.	A domestic U.S. C-corporation that elects to be treated as a passthrough entity for federal tax purposes. (No foreign corporations may become S-corporations.)	A separate legal entity with some corporate, some partnership characteristics, created by state statute. Owners are called members.
Management Structure:	A single individual; a dictatorship.	General Partnership (GP): Two or more persons sharing management; a democracy. Limited Partnership (LP): At least one manager; a dictatorship or democracy.	Hierarchical; owners (shareholders) elect managers (directors), directors direct and elect officers, officers execute conduct.	Hierarchical; owners (shareholders) elect managers (directors), directors direct and elect officers, officers execute conduct.	Member-managed: members share management; a democracy. Manager-managed: can be collaborative, hierarchical or combo- members elect at least one manager; management may be dictatorship or democracy. Very much a design-your-own entity.
Lifespan of the Business Form	Ends when proprietor stops or dies.	Generally ends when a partner withdraws or dissociates.	May exist in perpetuity regardless of changes in ownership or management.	May exist in perpetuity regardless of changes in ownership or management, provided new owners are eligible.	May exist in perpetuity regardless of changes in ownership or management.
Liability:	Unlimited personal.	GPs: Unlimited personal. LPs: Limited personal.	Limited personal.	Limited personal.	Limited personal.
Federal Tax Basics:	Personal Income, Self-Employment, any Employer’s Withholding. You cannot deduct your own wages.	Partnership files informational return. Partners pay tax on their share of income and losses. Special allocations allowed if substantial economic effect. All partnership debts used to calculate partner’s basis. Partnership may make basis adjustments. Cannot deduct partners’ distributions.	Separate entity taxation at corporate tax rates. Corporation pays income/estimated tax, applicable employment and excise taxes. Taxed on gain of appreciated assets. May deduct employee fringe benefits, exclude/defer certain gains, and carry certain losses. May deduct officer and employee reasonable compensation, including for owner-officers and owner-employees. Shareholders pay personal income tax on dividends.	Corporation files informational income return, pays employee withholding and any excise taxes. Shareholder-employee compensation subject to withholding, but shareholder distributions not. Shareholders pay personal income tax on pro-rata share of income/losses at personal income tax rates. No special allocations. Fringe benefits included in compensation of shareholders owning 2% or more interest. Shareholder basis includes corporate debt to that shareholder, but not general corporate debt. Generally eligible for tax-free merger with C-corp. Former C-corp taxed on gain from appreciated assets.	Flexible tax structure. Each LLC treated for tax purposes like another form of business. Single member LLCs default to sole-proprietorship (disregarded entity) taxation. Multi-member LLCs default to partnership taxation. Any LLC may elect C-corp. or S-corp. taxation.
Getting Paid:	Business income is your personal property. You are not an employee.	Partners receive distributions from the partnership.	Shareholders may receive dividends. Officers receive employee compensation. Owner-officer/employees receive employee compensation. Directors may receive independent contractor compensation (not typical in a smaller, closely-held corporation).	Shareholders may receive dividends. Officers may receive employee compensation. Owner-officer/employees receive employee compensation. Directors may receive independent contractor compensation (not typical in a smaller, closely-held corporation).	Members receive distributions. Non-member managers receive compensation. Member-managers may receive compensation, depending on tax type.
Eligible Owners:	Any individual.	Any individual or entity.	Any individual or entity.	A maximum of 100 eligible shareholders; only individual U.S. citizens or residents, certain tax-exempt organizations, certain trusts, and estates during normal administration. No partnerships, corporations, or nonresident alien individuals. Families may count as one (1) shareholder, but each person must be eligible.	Any individual or entity.
Classes of Ownership Allowed:	One owner.	Multiple classes with differing rights and preferences.	Multiple classes with differing rights and preferences.	Only one class of stock allowed, but may vary voting / non-voting rights.	Depending on tax type, multiple classes with differing rights and preferences. (But LLC taxed as S-corp. only one class of ownership with voting / non-voting rights.)
Transferable Ownership Interests:	Business indivisible from owner. No transferable ownership interests. (But note, all businesses may transfer assets.)	Only partners’ rights to receive distributions generally transferable, not partners’ rights to make management decisions.	Shareholders’ entire interest, including distribution, voting, and any other rights and preferences.	Shareholders’ entire interest, including distribution and voting, but transfer restricted to eligible shareholders.	Only members’ rights to receive distributions generally transferable, not members’ rights to make management decisions.
Duties of Owners and Managers:	No fiduciary duties.	GPs: Fiduciary duties of loyalty and care. LPs: No fiduciary duties. All: Duty of good faith and fair dealing.	Directors owe fiduciary duties of loyalty and care. Directors owe a duty of good faith and fair dealing.	Directors owe fiduciary duties of loyalty and care. Directors owe a duty of good faith and fair dealing.	Managers, or members who are managers, owe fiduciary duties of loyalty and care, and an obligation of good faith and fair dealing.
Minimum Essential Steps to Business Formation:	Engage in a trade or business. That’s it.	GP: Formed when two or more persons engage as co-owners in a business for profit. LP: Choose distinguishable LP name, determine registered agent/office, execute and file certificate of limited partnership + fee. Any partnership agreement is generally a private document.	Choose distinguishable corporate name, determine registered agent/office, determine stock issues, determine board of directors, execute and file articles or certificate of incorporation + fee, adopt bylaws, hold organizational meeting to elect/affirm board, adopt bylaws, elect officers, and take other initial actions.	Form a C-corporation and obtain EIN, then: 1. File IRS S-corp election, Form 2553, not later than two (2) months and fifteen (15) days after start of tax year in which desired, or prior to start of year desired. 2. Confirm IRS receipt of form and acceptance of election.	Choose a distinguishable LLC name, determine registered agent/office, determine management type (if applicable), execute and file articles or certificate of organization. (Operating agreement typically not required by the state for formation, but may be essential to spell out the deal between the members.)
Minimum Essential Steps to Business Compliance:	Register any assumed name. Acquire licenses. Determine and meet federal, local, industry compliance obligations. Get EIN, if employees. Get any required state tax ID.	Register any assumed name. Acquire licenses. Determine and meet federal, local, industry compliance obligations. Get EIN. Get any required state tax ID.	Acquire licenses. Determine and meet federal, local, industry compliance obligations. Get EIN. Get any required state tax ID.	Acquire licenses. Determine and meet federal, local, industry compliance obligations. Get any required state tax ID.	Acquire licenses. Determine and meet federal, local, industry compliance obligations. Get any required federal and state tax IDs.
Minimum Annual State Business Formalities:	Typically, none.	GP: Maintain books and records; make information available to partners. LP: File annual report + fee and any other required forms; maintain books and records; make information available to partners.	File annual report + fee, and any other required forms. At least one (1) annual shareholders’ meeting with minutes and records or written consent. At least one (1) annual board meeting with minutes and records or written consent. Maintain books and records; make information available to shareholders.	File annual report + fee, and any other required forms. At least one (1) annual shareholders’ meeting with minutes and records or written consent. At least one (1) annual board meeting with minutes and records or written consent. Maintain books and records; make information available to shareholders.	File annual report + fee, and any other required forms. Maintain books and records; make information available to members.
Comments:	Beware of unlimited personal liability.	A partnership agreement is generally essential to spell out the deal between the partners. Being an individual GP increases personal liability exposure!	Established business form, developed caselaw, ability to raise efficient capital/diversify risk/incentivize employees. Some tax benefits, but separate corporate and dividend taxes, asset gains, may be disadvantageous, depending on circumstances. MUST realize entity/owner separation! MUST form and maintain properly to achieve limited personal liability.	Established business form, developed caselaw. Restricted ownership: single class of ownership without ability to establish differing rights and preferences. Restricted share transferability. Benefit of pass through taxation with other corporate tax benefits and restrictions. Asset gains still taxed to former C-corp. Benefits of single level of tax on all owner business income. Officer-employee W-2 income not passthrough. Shareholder distributions passthrough. Tax type may be disharmonious with investor tax needs. Typically eligible for tax-free corporate merger. Generally easily convertible to C-corp. MUST realize entity/owner separation! MUST form and maintain properly to achieve limited personal liability.	Popular, flexible business form for combining limited liability and tailor-made structuring with choice of tax treatment. Single-member disregarded and multi-member partnership tax types – all member income passthrough subject to self-employment tax. Depending on tax type, may be disharmonious with investor tax needs. LLC disregarded or partnership generally easily convertible to C-corp. or S-corp. taxation. MUST realize entity/owner separation! MUST form and maintain properly to achieve limited personal liability.

Services

Contact