| ENTITIES >>> |
Sole Proprietorship |
C CORP |
S CORP |
LIMITED LIABILITY COMPANY (LLC) |
Ease of
Operation |
Easiest |
Must have annual
meetings, Board of
Directors meetings,
corporate minutes,
and stockholder
meetings. |
Must have annual
meetings, Board of
Directors meetings,
corporate minutes,
and stockholder
meetings. |
Easy, some states may require more
than others. |
Requirements to
Entity Formation & Costs
|
NONE
(Your business is shown on your personal tax return on a separate schedule) |
Must file with State and a filing
fee is required that may vary by State. |
Must file with State and a filing
fee is required that may vary by State. |
Must file with State and a filing
fee is required that may vary by State. |
Personal
Liability |
Unlimited liability. |
Shareholders are not
typically held liable. |
Shareholders are not
typically held liable. |
Members are not typically held liable. |
Administrative
Requirements |
Relatively few
requirements. |
Election of board of
directors/officers,
annual meetings, and
annual report filing
requirements. |
Election of board of
directors/officers,
annual meetings, and
annual report filing
requirements. |
Relatively few requirements… no annual meetings required by Members |
Management |
Full control. |
Shareholders elect
directors who
manage business
activities. |
Shareholders elect
directors who
manage business
activities. |
Members can set up structure as they
choose. |
How long does this Entity last? |
TERMINATED when
proprietor ceases
doing business or
upon death. |
PERPETUAL: can
extend past death or
withdrawal of
shareholders. |
PERPETUAL: can
extend past death or
withdrawal of
shareholders. |
PERPETUAL: unless state requires fixed amount of time. |
Taxation |
Entity is not separately taxable.
(Your business is shown on your personal tax return on a separate schedule) |
Taxed at corporate
rate and possible
double taxation:
Dividends are taxed
at the individual level
if distributed to
shareholders. |
No tax at the corporate level. The Income is passed
through to the
shareholders so there is No double tax. |
No tax at the entity level. Income passed
through to Members so there is No double tax. |
Double Taxation |
NO |
YES
… taxed at
corporate level and
then again if
distributed to
shareholders in the
form of dividends. |
NO |
NO |
Self Employment
Tax |
Subject to self
employment tax. |
Salary subject to self
employment tax. |
Salary subject to self
employment tax. |
Salary subject to self employment tax,
but shareholder distributions are not
subject to employment tax. |
Pass Through
Tax Treatment |
YES |
NO |
YES |
YES |
Tax Forms |
1040 |
IRS Form 1120 |
IRS Form 1120S
Shareholders get K-1
for personal tax
returns. |
1 member: sole proprietor IRS Form
1040 - Schedule C
Partnership: IRS Form 1065, Members
get K-1 |
Transferability of
Interest |
NO |
YES
Stock shares are
easily transferrable. |
YES
… but must
observe IRS
regulations on who
can own stock. |
POSSIBLY, depending on restrictions
outlined in the operating agreement. |
Money & Raising Capital |
Capital is provided by the individual Sole Proprietor. |
Stock is sold
to raise capital
(Securities laws
apply). |
Stock is sold
to raise capital.
(Limitations prevent S corp stock
ownership by corps.
|
May sell interests, but subject to
operating agreement
(Securities laws may also apply). |
