Buyer's Guides
Business Entity Basics: What Are the Differences Between Different Corporate Structures?
AllBusiness.com
Date:Tuesday, October 26 2004
Date:Tuesday, October 26 2004
Summary of Key Differences Between Various Types of Business Entities
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Characteristics
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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 | 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 Owner | 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 (subject to some exclusions) ("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 |
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| 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 |
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Additional Steps in Choosing a Business Structure: A Step-by-Step Guide
- 1. Choosing the Right Corporate Structure for Your Small Business
- 2. Business Entity Basics: What Are the Differences Between Different Corporate Structures?
- 3. Forms of Business Ownership
- 4. Comparison Chart for Different Business Entities
- 5. Checklist: Comparing Structures
- 6. Tips: Comparing Structures
- 7. Advantages and Disadvantages of Forming a Corporation
- 8. Advantages and Disadvantages of C Corporations
- 9. Advantages and Disadvantages of S Corporations
- 10. Guide to Operation of a Newly Formed California Corporation
- 11. Action of Incorporator (California corporation)
- 12. Action of Incorporator (Delaware corporation)
- 13. Amended and Restated Certificate of Incorporation
- 14. Articles of Incorporation (California Corporation)
- 15. Checklist for Formation of a Corporation
- 16. Corporate Governance
- 17. Checklist: Incorporating
- 18. Tips: Incorporating
- 19. Advantages and Disadvantages of General Partnerships
- 20. Checklist for Drafting General Partnership Agreements
- See Entire Guide
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