BASIC BUSINESS ENTITIES
There is no "one size fits all" entity when it comes to structuring your business or estate. Your business purpose, products, assets, operations, risks, co-relationships, growth, and capitalization are all important considerations in choosing the right entity. Below is a chart of the basic business forms and a few of their characteristics for comparison
Characteristic
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C Corporations
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S Corporations
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Sole Proprietorship
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General Partnership
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Limited Partnership
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LLC
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Ownership Rules
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Unlimited number of shareholders allowed; no limit on stock classes
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Up to 75 shareholders allowed; only one basic class of stock allowed
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One owner
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Unlimited number of general partners allowed
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Unlimited number of general and limited partners allowed
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Unlimited number of “members” allowed
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Personal Liability of the Owners
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Generally no personal liability of the shareholders for the obligations of the corporation
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Generally no personal liability of the shareholders for the obligations of the corporation
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Unlimited personal liability for the obligations of the business
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Unlimited personal liability of the general partners for the obligations of the business
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Unlimited personal liability of the general partners for the obligations of the business; limited partners generally have no personal liability
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Generally no personal liability of the members for obligations of the business
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Tax Treatment
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Corporation taxed on its earnings at the corporate level and the shareholders have a further tax on any dividends distributed (“double taxation”)
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Entity generally not taxed as the profits and losses are passed through to the shareholders (“pass-through” taxation)
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Entity not taxed, as the profits and losses are passed through to the sole proprietor
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Entity not taxed as the profits and losses are passed through to the general partners
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Entity not taxed, as the profits and losses are passed through to the general and limited partners
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Entity not taxed (unless chosen to be taxed), as the profits and losses are passed through to the members
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Key Documents Needed For Formation
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Articles of Incorporation
Bylaws
Organizational Board Resolutions
Articles of Incorporation
Stock Certificates
Stock Ledger
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Articles of Incorporation
Bylaws
Organizational Board Resolutions
Articles of Incorporation
Stock Certificates
Stock Ledger
IRS & State S Corporation election
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DBA filing
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General Partnership Agreement
Local filings if partnership holds real estate
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Limited Partnership Certificate
Limited Partnership Agreement
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Articles of Organization
Operating Agreement
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Management of the Business
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Board of Directors has overall management responsibility and officers have day-to-day responsibility
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Board of Directors has overall management responsibility and officers have day-to-day responsibility
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Sole proprietor manages the business
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The general partners have equal management rights, unless they agree otherwise
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The general partner manages the business, subject to any limitations of the Limited Partnership Agreement
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The Operating Agreement sets forth how the business is to be managed – a Manager can be designated to manage the business
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Capital Contributions
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Shareholders typically purchase stock in the corporation, either common or preferred
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Shareholders typically purchase stock in the corporation, but only one class of stock is allowed
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Sole proprietor contributes whatever capital needed
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The general partners typically contribute money or services to the partnership, and receive an interest in profits and losses
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The general and limited partners typically contribute money or services to the limited partnership, and receive an interest in profits and losses
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The members typically contribute money or services to the LLC, and receive an interest in profits and losses
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