| Sole Proprietorship | Partnership | Corporation | Sub-S Corporation | Limited Liability Partnership | Limited Liability Company | |
|---|---|---|---|---|---|---|
| Ownership | By a single individual | By two or more persons | By unlimited number of shareholders | By shareholders: number of shareholders limited to 75 | 2 or more persons or entities (except law firms) | 1 or more persons or entities (except certain providers of professional services and law firms) |
| Management | Entirely in hands of owner | By general partners | Corporation's board of directors | Same as regular corporation | By general partners | Member-managed, or manager-managed |
| Life | Will terminate with death or disability of owner | Generally for a specific, agreed-upon term. Partnership may be terminated by death, withdrawal, insolvency, or legal disability of a general partner | Unlimited, unless by state law or charter | Same as regular corporation | Generally for a specific, agreed-upon term. Partnership may be terminated by death, withdrawal, insolvency, or legal disability of a general partner | May be for a specific agreed-upon time, or at will |
| Liability | Owner liability unlimited. Personal property can be attached by creditors to settle business debts | Unlimited for general partners. General partners are jointly and severally liable for obligations of partnership. Limited partner's liability limited to amount invested | Shareholders' liability limited to their investment in corporation stock | Same as regular corporation | Limited to amount of investment | Limited to amount of investment, or as specified in Articles of Organization |
| Taxation | Owner taxed on business profits whether or not distributed | Partners taxed on share of partnership income whether or not distributed | Corporation taxed on taxable income, whether or not distributed to shareholders | Shareholders taxed on taxable income of corporation, whether or not distributed | Partners taxed on share of partnership income whether or not distributed | Members taxed on share of company income whether or not distributed |
| Advantages | Uncomplicated -- ease of formation Greater flexibility of action Singleness of control Economy of operation Tax advantage by avoiding corporate income tax Maximum centralized authority |
Division of responsibilities Ease of formation Greater flexibility of action Increased sources of capital Incentive to key employees Tax advantage by avoiding corporate income tax |
Legal entity separate from individuals Limited personal liability Continuity of existence Continuity of management Easier to raise capital Incentive to key employees Readily transferable interests Possible separation of ownership and management |
Legal entity separate from individuals Limited personal liability Continuity of existence Continuity of management Readily transferable interests Possible separation of ownership and management Net operating loss deductible by shareholders |
Division of responsibilities Ease of formation Limited personal liability Greater flexibility of action Increased sources of capital Incentive to key employees Tax advantage by avoiding corporate income tax |
Legal entity separate from individuals Limited personal liability Continuity of existence Continuity of management Easier to raise capital Incentive to key employees Readily transferable interests Possible separation of ownership and management |
| Disadvantages | Unlimited personal liability Legal life ends with owner's death Difficulty in raising capital Possible personnel difficulties Owner's salary cannot be treated as expense, hence, not tax deductible |
Unlimited personal liability Impermanence of existence Division of control/ authority Difficult to find compatible partners Difficult to raise additional capital Owners' salary/wage cannot be treated as expense, hence, not tax deductible |
Difficult, costly formation Subject to close government regulation Scope limited by corporate charter Inflexibility of operations Double taxation by paying both corporate and personal income taxes |
Only one class of stock outstanding Difficult, costly formation Subject to close government regulation Inflexibility of operations |
Impermanence of existence Division of control/ authority Difficult to find compatible partners Difficult to raise additional capital Owners' salary/wage cannot be treated as expense, hence, not tax deductible |
Difficult, costly formation Subject to close government regulation Scope limited by company charter Inflexibility of operations |