Business Structure and Entity Comparison Tables, Business Structure Article

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© Created by Kimberly Allegretti who is an Attorney and Special Counsel at Wood, Ris & Hayes, P.C., in Denver, Colorado. Article or any portions of it MAY NOT BE REPRODUCED without prior written consent - all rights reserved.

Get Competive Quotes to :
Incorporate a Business -OR- to Form an LLC

Browse below to compare the advantages and disadvantages of incorporating your business (including c-corp, s-corp), forming a limited liability company - LLC, partnership and sole proprietorship and see which one suits the best for your needs.

Business Entity Issues Related to the Creation of a Business

Entity Type	Creation	Profit and Losses
Sole Proprietorship	» no legal formalities necessary to create	» owner entitled to use all losses and profits of business
General Partnership	» by agreement of 2 or more persons » informal agreement (determined by actions of the partners) OR » formal written agreement	» by agreement » in absence of agreement: - profits shared equally - if agreement covers profits but not losses then losses shared in same ration
Limited Parenership	» must be permitted by state law » must file a certificate of limited partnership » by agreement of 2 or more persons (at least 1 gen'l partner and 1 limited partner	» general partners share by agreement » limited partners: - share profits by agreement - share losses only up to their capital contribution
Limited Liability Company	» must be permitted by state law » must file Articles of Organization	» by Operating Agreement
S- Corporation	» must be permitted by state law » must file Articles of Incorporation » must file form 2553 with IRS	» individual shareholders entitled to use proportionate share of S-Corp's losses limited to the extent of the shareholder's basis in the corporation
C-Corporation	» must be permitted by state law » must file Articles of Organization	» individual shareholders are not entitled to use corporate losses

Business Entity Issues Related to the Liability of a Business

Entity Type	Liability	Capital and Financing
Sole Proprietorship	» sole proprietor has unlimited liability	» all capital is that of sole proprietor » all loans obtained on creditworthiness of owner
General Partnership	» all partners have unlimited liability	» contributions set by agreement (may be cash, property or services) » personal loans, bank loans
Limited Parenership	» all general partners have unlimited liability » limited partners are liable up to the amount of their investment in the company	» set by agreement ( may be cash, property or services) » personal loans, bank loans
Limited Liability Company	» all members are liable up to the amount of their investment in the company » members and managers have no personal liablity for the debts or obligations of the LLC	» set by agreement ( may be cash, property or services) » personal loans, bank loans
S- Corporation	» shareholders liable up to the amount of their investment in the company » shareholders have no personal liablity for the debts of the corporation » must file form 2553 with IRS	» issuance of stocks » personal loans, bank loans
C-Corporation	» shareholders liable up to the amount of their investment in the company » shareholders have no personal liablity for the debts of the corporation	» issuance of equity securities (stock) » issuance of debt securities (bonds) » personal loans, bank loans

Business Entity Issues Related to the Taxation of a Business

Entity Type	Management and Control	Taxation
Sole Proprietorship	» management is vested in the proprietor	» the business does not file a return nor does it pay taxes
General Partnership	» each partner has a right of management which can be waived or limited by agreement of the partners	» an informational tax return must be filed, but the entity itself does not pay taxes
Limited Parenership	» management is centralized in the general partner » limited partners may not participate in management and risk loss of liability protection if they do	» an informational tax return must be filed, but the entity itself does not pay taxes
Limited Liability Company	» management may be vested in the members or the managers	» an informational tax return must be filed, but the entity itself does not pay taxes
S- Corporation	» management is vested in the board of directors and in corporate officers	» an informational tax return must be filed, but the entity itself does not pay taxes
C-Corporation	» management is vested in the board of directors and in corporate officers	» the corporation must file a return and must pay taxes on corporate income » the individual shareholders also pay taxes on dividends

Business Entity Issues Related to the Duration of a Business

Entity Type	Duration	Transfer of Ownership
Sole Proprietorship	» no continuity of life upon death or retirement of owner	» assets may be sold in entirely or in part, but either results in new entity
General Partnership	» by agreement » can be dissolved by: - action of a partner (eg. withdrawal) - operation of law (eg. death or bankruptcy) - court decree	» partnership interest (with full rights) may only be transfered upon consent of all partners
Limited Parenership	» general partners: - by agreement - by withdrawal, death or insanity of gen'l partner » limited partner's death or withdrawal does not end the partnership unless he or she is the only limited partner	» partnership interest of general partner (with full rights) may only be transfered upon consent of partners » partnership interest of limited partner can be freely transferable but usually it is restricted
Limited Liability Company	» by Articles of Oragnization - set date - set dissolution events » in some states, duration may now be perpetual	» members must consent to transfer of ownership interests » subject to restriction in Articles of Organization and Operating Agreement
S- Corporation	» continuity of existence may be perpetual	» ownership interests are freely transferable but must keep in mind IRS req's for retaining S-Corp. status » subject to restrictions in Art. of Inc. and Bylaws
C-Corporation	» continuity of existence may be perpetual	» ownership interests are freely transferable » subject to restrictions in Art. of Inc. and Bylaws

Kimberly Allegretti is an attorney and a special counsel at Wood, Ris & Hayes, P.C., in Denver Colorado and has helped incorporate several small business startups in the greater Denver area.

Get Competive Quotes to : Incorporate Your Small Business -OR- to Form an LLC

This article was submitted by - Kimberly Allegretti


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