| |
Proprietorship |
Partnership |
Corporation |
Limited Liability Company |
|
General Description |
Single owner, self-employed individual |
More than one owner |
Entity organized by state law, acts as a single entity while owned by more
than one entity |
Hybrid entity combining limited liability of a corp. while being taxed like
a partnership |
|
Owners |
Owner/Proprietor |
Partners |
Shareholders |
Members |
|
How formed |
No documents required |
Optional Partnership Agreement |
Articles of Incorporation, bylaws and shareholder agreements |
Articles of Organization and Operating Agreement |
|
Est. Cost to Setup |
Minimal |
Minimal |
$500 - $1,500 |
$500 - $2,500 |
|
Management |
Single owner with flexibility and sole control |
Governed by partnership agreement and/or majority of votes |
Centralized Management through officers and board of directors |
Governed by operating agreement |
|
Capitalization |
Limited to owners assets and loans |
Multiple owners' assets and loans |
Multiple owners' assets and loans |
Multiple owners' assets and loans |
|
Continuity of Life |
Finite, ceases upon death of Owner |
Terminates upon change in Partners |
Indefinite Life |
Terminates upon change in Members |
|
Transferability of Ownership |
Assets can be sold but business terminates |
Transferable upon Partners' approval |
Freely transferable if not restricted by agreement |
Transferable subject to operating agreement |
|
Liability of Owners |
Unlimited Liability |
Unlimited Liability plus other partners can bind |
Generally limited to investment |
Generally limited to investment |
|
Tax Years Allowed |
Generally calendar year |
Generally calendar year |
Any year end unless S Corp or PSC |
Generally calendar year |
|
Taxability of Income |
Reported on 1040 and subject to self-employment tax |
Passed through to Owners and allows for special allocations |
Corporate tax when earned and second tax when distributed (1) |
Passed through to Owners and allows for special allocations |
|
Deductibility of Losses |
Deductible against other income subject to limitations |
Passed through to Owners and allows for special allocations |
Deductible against past and future income (1) |
Passed through to Owners and allows for special allocations |
|
Owners Fringe Benefits |
Generally not deductible |
Generally not deductible |
Deductible subject to limits (1) |
Generally not deductible |
|
Potential Tax Traps |
Alternative Minimum Tax (AMT) |
Alternative Minimum Tax (AMT) |
AMT, Accumulated Earnings, PHC and PSC tax, Unreasonable Compensation (1) |
Alternative Minimum Tax (AMT) |
