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Business Entities

Which legal structure works best for your business?

business entity question

Do you sell widgets online? Perhaps you develop software, or manage a portfolio of rental properties? Selecting a business entity has long-term ramifications on your success. From legal protection to taxation, the entity you choose will either serve you well or cost you dearly.

We have prepared the chart below to help you understand the key benefits, compliance costs, and risks assigned to each structure.

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Do you have questions?

We invite your call to discuss this chart and what may work best for your business.

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Entity Type

Owners Liability

Taxation

Formation

Corporate Maintenance

Investment

Sole Proprietorship

Fully Liable

On owners personal tax return

Not needed

None

Owner's responsibility

S-Corporation

Owners have limited personal liability for business debts.

Corporate profit or loss is allocated according to ownership share and is reported on each owner's personal tax returns. 

This entity is more expensive to create than a partnership or sole proprietorship.

More formality requirements than for a limited liability company which offers similar advantages.

C-Corporation

Owners have limited personal liability

Double taxation: Owners get taxed as corp + on dividends Fringe benefits can be deducted as business expense.

May have an unlimited number of shareholders. More expensive to create than partnership or sole proprietorship.

Required annual meetings and notes

Shares of stock may be sold to raise capital

Limited Liability Company

Combines a corporation's liability protection and pass-through tax structure of a partnership.

Choose to be taxed as Schedule C-Sole Proprietor, Partnership or S-Corporation.

This entity is more expensive to create than a partnership or sole proprietorship.

Significantly easier to maintain than a corporation.

Same as Partnerships

General Partnership

Owner (partners) personally liable

On owners(partners) personal tax return

Simple, No filing required

Minimal

General partners can raise money

Limited Partnership

Non-participating limited partners have limited personal liability for business debts. However, general partners are held personally liable for any and all business debts.

Choose to be taxed as SchC-Sole Proprietor, Partnership or S-Corporation.

More complex than General Partnership

More than General Partnership

General partners can raise money

Professional Limited Liability Company

Members have no personal liability for malpractice of other members; however, they are liable for their own acts of malpractice.

One owner: Same as propertiership 2+ owners: Same as partnership

Members must all belong to the same profession. Not available in all states.

Same as LLC

Same as Partnerships

Professional Corporation

Individual partners exempted from personal liability for malpractice of the other partners, but not their own.

PCs are granted the taxation benefits of a corporation.

Alternative for professionals in states where a C-Corp is not an option. More expensive to create than a partnership. All owners must be in the same profession.

Formality requirements (e.g., annual reports, minutes, meetings) are required to maintain corporate status.

Non-Profit Corporation

A non-profit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientic purpose.

Full tax advantages available only to groups defined as Non-Profit Corporations.  Deduct fringe benefits as business expenses.

Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes.

Formality requirements (e.g., annual reports, minutes, meetings) required to maintain corporate status. Property transferred to corporation stays there; if corporation ends, property must go to another non-profit.

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