Williams, Jordan, Brodersen & Pritchett LLP

Business

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