Structure Comparison
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Structure Comparison |
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| SOLE PROPRIETORSHIP | PARTNERSHIP | "C" CORPORATION | "S" CORPORATION | LLC | |
| How easy is it to start? | Easy | Moderate level of difficulty | Increased level of difficulty; you may need help. | Increased level of difficulty; You may need help. | Most likely you will need help from an accountant and an attorney |
| How muck personal liability do I have? | Unlimited personal liability | Unlimited personal liability | Generally limited to amount of investment | Generally limited to amount of investment | Generally limited to amount of investment |
| How many owners can there be? | One | No limit | No limit | No more than 75 shareholders with a husband and wife counting as one | No limit |
| Who can be an owner? | Only one individual | Two or more people may be owners who are none of the following: corporations, trusts, estates, and tax-exempt entities | Any person may be an owner including, individuals, corporations, other partnerships, trusts, estates, and tax-exempt entities | Generally only individuals who are US citizens or resident aliens, estates, or certain trusts may be shareholders | Any person may be an owner including, individuals, corporations, other partnerships, trusts, estates, and tax-exempt entities |
| How is the business taxed? | No tax is imposed on a sole proprietor, instead all income is passed through to the owner | No tax is imposed on a partnership, instead all income is passed through to the partners | Income is taxed at the corporate level and then at the shareholder level when dividends are disbursed | No tax is imposed; Income is passed through and taxed at the shareholder level | No tax is imposed; Income is passed through and taxed at the member level |
| Can I deduct any business losses from my taxes? | Losses are passed through to owners and are deductible by the owner of the business | Losses are passed through to partners and are deductible by the partners to the extent of their interest in the partnership | Losses for any tax year are not deductible by owners but may only be carried back or forward to offset income in another tax year | Losses are passed through to shareholders and are deductible by shareholders to the extent of their interest in the S corporation | Losses are passed through to members and are deductible by the partners to the extent of their interest in the LLC |
| How can I allocate income among any owners? | All income is allocated to the sole proprietor | Partners may allocate income by the terms in a partnership agreement | Preference as to the dividends can be given by issuing preferred stock but losses are deductible only at corporate level | No difference in allocation of income is allowed since s corporations can only have one class of stock (besides voting rights) | Partners may allocate income by the terms in the articles of organization |
| What about social security and self-employment taxes? | Self-employment tax payable on income which is earned by the sole proprietor | Self-employment tax payable on income which is passed through to general partners | No self-employment tax; social security tax payable on salaries paid to any employees | No self-employment tax; social security tax payable on salaries paid to any employees | Self-employment tax payable on income to members taking an active role in management |