Complete Business Type Comparison
| Entity Type | Liability | Taxation | Formation | Corporate Maintenance |
| Sole Proprietorship | Owner personally liable for business debts. | Owner reports profit or loss on his or her personal tax return. | Simple and inexpensive to create and operate. No filing necessary. | No formal corporate maintenance is required. |
| General Partnership | Owner (partners) personally liable for business debts. | Owner (partners) reports profit or loss on his or her personal tax returns. | Simple and inexpensive to create and operate. No filing necessary. | General partners can raise cash without involving outside investors in management of business. |
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Limited partners have limited personal liability for business debts as long as they don’t participate in management.
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The limited partnership provides the limited partners a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement.
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Suitable mainly for companies that invest in real estate. | General partners can raise cash without involving outside investors in management of business. | |
| More expensive to create than general partnership. | General partners personally liable for business debts. | |||
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Combines a corporation’s liability protection and pass-through tax structure of a partnership.
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IRS rules now allow LLCs to choose between being taxed as partnership or corporation.
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More expensive to create than partnership or sole proprietorship.
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Sale of member interests may take place per company policy. | |
| Significantly easier to maintain than a corporation. | ||||
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Professional Limited Liability Company
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Same advantages as a regular limited liability company. |
A single member PLLC is treated as a disregarded tax entity, the same as a sole proprietor, giving it pass-through tax treatment. A multiple member PLLC taxed as a partnership.
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Gives state licensed professionals a way to enjoy LLC advantages. |
Members have great flexibility through written operating agreement to define rights & responsibilities, powers, financial matters of PLLC, and rights / restrictions re: ownership interests.
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| Members have no personal liability for malpractice of other members; however, they are liable for their own acts of malpractice. | Members must all belong to the same profession. | |||
| Not available in all states. | ||||
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Owners have limited personal liability for business debts.
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Owners can split corporate profit among owners and corporation, paying lower overall tax rate. | May have an unlimited number of shareholders. | Shares of stock may be sold to raise capital | |
| Separate taxable entity. | More expensive to create than partnership or sole proprietorship. | meetings) are required to maintain corporate status. | ||
| Fringe benefits can be deducted as business expense. | ||||
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Owners have no personal liability for malpractice of other owners. Owners have liability for own acts of malpractice.
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PCs are granted the taxation bene fits of a corporation.
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Option when certain states do not allow professionals to form a C-Corp. |
Formality requirements (e.g. annual reports, minutes, meetings) are required to maintain corporate status.
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| More expensive to create than partnership or sole proprietorship. | ||||
| All owners must belong to the same profession. | ||||
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A nonprofi t corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scienti c purpose.
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Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes. |
Full tax advantages available only to groups organized for charitable, scientific , educational, literary or religious purposes.
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Formality requirements (e.g. annual reports, minutes, meetings) required to maintain corporate status. | |
| Contributions to charitable corporation are tax-deductible. | Property transferred to corporation stays. | |||
| Fringe benefits can be deducted as business expense. | there; if corporation ends, property must go to another non-profit. | |||
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Owners have limited personal liability for business debts.
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Owners report their share of corporate profit or loss on their personal tax returns. |
More expensive to create than partnership or sole proprietorship.
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More formality requirements than for a limited liability company which offers similar advantages.
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| Income must be allocated to owners according to their ownership interests. | ||||
| Owners can use corporate loss to offset income from other sources. | ||||
| Fringe benefits limited for owners who own more than 2% of shares. |
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