Entity Comparison Table
One most frequently asked questions we hear is, “Which business entity is right for my business?” Although we cannot give legal advice and make that decision for our clients, we can offer valuable information so our clients can make an informed decision based on their business needs. The table provides partnership information and can help you understand LLC advantages and disadvantages as well as corporation advantages and disadvantages. When you have determined the best business entity for your needs, we can help incorporate your business.
Business Entity Comparison Table
For questions regarding terms found in the comparison table, please click here to visit our Glossary of Terms.
| Comparison Factors | Sole Proprietorship (SP) | General Partnership (GP) | Limited Liability Company (LLC) | S Corporation (S Corp) | C Corporation - General Stock (C Corp) |
|---|---|---|---|---|---|
| Business formation | City tax license may be required. No state filing required. |
No state filing required. Some states allow GPs to file at state agency. An Agreement between two or more parties. Partnership agreement should be created. | Required to file formation document with the State filing agency. Most states require an Operating Agreement. | Required to file formation document with the state filing agency. Most states require annual meetings and bylaws. Must elect S status through the IRS, additional filing required. | Required to file formation document with the state filing agency. Most states require annual meetings and bylaws. |
| Size | One person ownership. | Two or more person ownership. | Most states allow single member LLC’s but some require 2 or more members. | Up to 75 members/ shareholders. | Unlimited |
| Length of Existence | Sole proprietorship either ceases doing business or dies | Depends upon partnership agreement. Typically death or withdrawal of a partner dissolves the GP. | Some states allow LLC’s to have a perpetual existence. Others depend upon the state’s requirements. | Perpetual | Perpetual |
| Liability | SP has unlimited liability and can lose personal assets. | General Partners are equally liable unless the partnership agreement states otherwise. | Members are not liable for debts accrued by the company unless a member secured the debt with a personal asset. | Shareholders are typically not liable for the debts of the corporation. Some officers can be held liable if there is fraud or severe mismanagement. | Shareholders are typically not liable for the debts of the corporation. Some officers can be held liable if there is fraud or severe mismanagement. |
| Operational Procedures | Easiest with few legal requirements | Typically, GPs have few legal requirements. | Most states have some formal requirements like annual reports but are typically less than a corporation. | Annual meetings, filings, and reporting required. Board of Directors and Officers must be maintained. | Annual meetings, filings, and reporting required. Board of Directors and Officers must be maintained. |
| Start up costs listed apply to California business entities only. | Cost of business tax license | Cost of business tax license. In California, a GP can be filed in the county of business and/or at the State level; $70 state filing fee applies. | State filing fee is required. $70 + $800 annual minimum tax every year. Local city and county registration fees may apply. | State filing fee is required. $100 + $800 annual minimum tax starting the second year. Local city and county registration fees may apply. | State filing fee is required. $100 + $800 annual minimum tax starting the second year. Local city and county registration fees may apply. |
| Management | SP is in complete control of managing operations | Or less the partnership agreement states otherwise, each partner has equal management authority. | Management is outlined in the LLCs Operating Agreement. | Officers manage day to day corporate activities. Directors manage the officers and the overall company. Directors are elected and therefore managed by the shareholders. | Officers manage day to day corporate activities. Directors manage the officers and the overall company. Directors are elected and therefore managed by the shareholders. |
| Taxation | Taxed Once | Taxed Once | Taxed Once | Taxed Once | Double; both the corporation and shareholders are taxed. |
| Pass through taxation for both income and loss | Yes | Yes | Yes | Yes | No |
| Interest Transferability | No. Unless business is sold to another party. | No. | Depends upon the operating agreement. | Yes. Some IRS regulations on stock ownership. | Shares of stock are easily transferred |
| Raising Capital | Hard to get outside capital. Owner typically contributes all funds. | Partners contribute capital and more capital can be raised by adding new partners | Some operating agreements allow interests to be sold. | S Corps can sell stock to raise capital. | C Corps can sell stock to raise capital. |
| Dissolution | Easiest | Easy | Complex. Requires filing dissolution document with state filing agency. Some states require a tax clearance prior to dissolution. | Most Complex. Requires filing dissolution document with state filing agency. Some states require a tax clearance prior to dissolution. | Most Complex. Requires filing dissolution document with state filing agency. Some states require a tax clearance prior to dissolution. |
| Examples | Mom & Pop Ice cream shop, arts and crafts shop, graphic designer or a website developer. | Small business with 2 or more trusted partners. Brothers or two good friends form a General Partnership for an auto repair shop. |
Real Estate Investment Property, Motion Picture, or restaurant. In California, an LLC cannot require a professional license to operate such as a Contractor's license, Real Estate license, or a Cosmetology license. | Small business or Family business such as a print shop, Pizza Parlor, or Interior Design. | Public Corporation. Software company, telecommunications company, Automobile maker, etc. |
NOTE: We hope you find our entity comparison table useful and easy to follow. Nothing contained in our entity comparison table should be construed as giving legal or financial advice. Our intended audience is attorneys and accountants. Therefore, if you are not an attorney or accountant, you should contact an attorney or accountant for specific legal or tax questions. Please be aware that the laws at the federal and state level change without notification. Although we do our best to update our entity comparison table and stay current, we shall not be held liable for any omissions or errors contained. We do not profess to be giving legal or financial advice to the general public. We are a typing and filing agency that serves the needs of attorneys and accountants.
One most frequently asked questions we hear is, "Which business entity is right for my business?"