Checklist: Partnerships, LLCs, & Sole Proprietors

Advantages:

• Easiest and least expensive to create
• One person makes all the decisions
• The owner receives all the income from the business
• Profits flow directly to the owner’s personal income tax return
• Easy to dissolve the business

Disadvantages:

• Can be difficult to get funding
• Hard to attract high-caliber employees.
• Owner has unlimited liability and is legally responsible for all debts against the business

Advantages:

• Easy to establish
• Multiple owners make it easier to raise funds
• Profits flow directly through the partners’ personal tax returns
• Easier to attract high-caliber employees, especially if they have an opportunity to join the partnership

Disadvantages:

• Each partner is individually responsible for the actions of the other partners
• All profits must be shared with other partners
• When each partner has decision-making power, there are more opportunities for disagreements
• Partnerships have a limited life and must be dissolved if one partner withdraws from the business or dies.

Advantages:

• Easier to raise funds through the sale of stock.
• The cost of benefits that are provided to officers and employees are tax deductible.
• Shareholders are not liable for judgments against the corporation and cannot be held liable for the corporation's debts.
• S corporations offer some tax benefit

Disadvantages:

• Forming a corporation requires more time, money, and paperwork than other business structures
• Tax laws that govern corporations can be complex, and accounting professionals will be needed in order to minimize tax liabilities
• Dividends paid to shareholders are not deductible from business income, which means they are taxed twice