Business Entities

Business Types

Sole Proprietorship

C Corporation

S Corporation

Partnership

Limited Liability Company

Formation

No state filing required. Owned and operated by a single, specific individual.

State filing required.

State filing required. No more than 100 shareholders. Nonresident aliens are not eligible.

No state filing required. Owned by two or more partners.

State filing required.

Existence

Automatically dissolved upon death.

Perpetual life.

Perpetual life.

Varies from state to state.

Varies from state to state.

Liability

A sole proprietor has unlimited liability because the sole proprietorship is not a separate legal entity.

Shareholders are not responsible for the debts of the corporation.

Shareholders are typically not responsible for the debts of the corporation.

General partners are liable for the debts of the partnership.

Members are not personal responsible for the debts of the LLC.

Management

A sole proprietor has full control of management and operations

Management reports to the directors, who are elected by the shareholders

Management reports to the directors, who are elected by the shareholders

Partners may have an oral or written operating agreement

An LLC can opt to be managed by its members or managers.

Taxation

Not a separate taxable entity. A sole proprietor pays all taxes on his/her individual return.

Taxed at the entity level. Dividends paid to owners are also taxable income for them.

Generally, no tax at the entity level. Income and losses are passed through to shareholders.

Generally, no tax at the entity level, but must file the information return annually. Income and losses are passed through to partners.

By default, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.

Pass-Through

Yes

No

Yes

Yes

Depends

Double Taxation

No

Yes

No

No

Depends

Transferability

No

Yes

Yes

Yes

Yes