Business Structure Basics

Limited Liability Limited Liability

Characteristics Sole Proprietorship General Partnership Limited Partnership C Corporation S Corporation
Partnership Company

State filing and

appointment of State filing and
Agreement between State filing and registered agent State filing and State filing and
appointment of
No state filing two or more parties. appointment of required. Some appointment of appointment of
Formation registered agent
required. No state filing registered agent states limit LLPs to registered agent registered agent
required. IRS election
required. required. licensed required. required.
required.
professionals.
Death or withdrawal of
Dissolves upon general partner
Dissolved if entity death or triggers dissolution
unless partnership Dependent on the Perpetual, unless Perpetual, unless
ceases doing withdrawal of a Perpetual, unless
Duration of agreement provides requirements otherwise stated in otherwise stated in
business or upon partner, unless otherwise stated in
Existence otherwise; death imposed by the state articles of articles of
death of the sole safeguards are formation documents.
of limited partner does of formation. incorporation. incorporation.
proprietor. specified in an
agreement. not trigger dissolution.

Partners are not Shareholders are Shareholders are Members are not
At least one general typically typically not typically typically
Sole proprietor has Partners have
Liability partner has responsible responsible not responsible responsible
unlimited liability. unlimited liability.
unlimited liability. for the debts of for the debts of the for the debts of the for the debts of the
the LLP. corporation. corporation. LLC.

Few formal
requirements for
Some formal Certain states require meetings and
Board of Directors, Board of directors,
Operational Relatively few legal Relatively few legal requirements, an LLP to management
annual meetings, and annual meetings,
Requirements requirements. requirements. but less formal than carry insurance or an structure. Annual
annual report. and annual report.
corporations. escrow. report is generally
required.
Limited partners
are All partners
Sole proprietor has Typically each partner excluded from Managed by directors Managed by directors Can be managed by
have the right
full control of has an equal voice, management who who members or by
Management to
management and unless otherwise other than actions are elected by are elected by managers selected by
manage the business
operations. arranged. specifically allowed shareholders. shareholders. members.
directly.
under state law.
Not taxed at entity
Not taxed at entity Not taxed at entity level unless
Not taxed at entity Taxed at entity level. Generally not taxed at election to be taxed as
Not a taxable entity. level, but level, but
level, but partnership Corporate entity level; but corporation
Taxation Sole proprietor partnership tax partnership tax
tax return must be tax return must be S corp tax return must is made. LLC tax
pays all taxes. return must be return must be
filed. filed. be filed. return must be filed.
filed. filed.

Pass-through
Income/Loss Yes. Yes. Yes. Yes. No. Yes. Yes.

Yes, if income
distributed to
Double Taxation No. No. No. No. shareholders as No. No.
dividends.

Cost of Creation State filing fee State filing fee State filing fee State filing fee State filing fee
None. None. required. required. required. required. required.

Contributions can Contributions can Possible to sell

be Contributions can be Shares of stock are interests,
Often difficult unless made from be made from Shares of stock sold to though subject
Equity Financing individual contributes partners, made from partners, partners, are sold to raise raise capital subject to to operating
funds. and more partners and more partners can and more partners capital. IRS restrictions on agreement
can be added. be added. can be added. stock ownership. restrictions.
Shares of stock are
Yes, if provided for in Possible, freely transferable
Yes, pending approval Shares of stock are Possible, dependent
partnership dependent subject to
of other limited freely transferable on operating
Transferability No. agreement and on partnership provisions in bylaws
partners and the subject to agreement
of Interest approved by other agreement and IRS restrictions on
general partners. provisions in bylaws. restrictions.
partners. restrictions. stock ownership.