Get an Operating Agreement for your new LLC

ENTITY COMPARISON CHART

A business can take a number of forms, such as a limited liability company or partnership, a “C” corporation, or an “S” corporation. When one starts a business, they must choose the form in which they will operate. Both non-tax and tax considerations should guide the choice. Until recently, the choice was essentially between the corporate form of doing business, and the partnership form (either general or limited partnership). In recent years a third alternative has become available in all states, the LLC.

	LLC	Sole Proprietorship	“C” Corporation	“S” Corporation	General Partnership
Formation	File Articles of Organization with State agency	Automatically formed upon start of business. No filings necessary	File Certificate of Formation with State agency	File Certificate of Formation with State agency	Two or more persons intend to operate a business. No filings necessary
Management	Can be manager or member managed	Owner managed. May be manager managed	Corporate management structure is fixed. Shareholders can be officers and directors	Corporate management structure is fixed. Shareholders can be officers and directors	Must be partner managed. Cannot be manager managed
Liability	Limited liability for all members. Members not liable for LLC debts. Piercing the LLC veil possible	Owner personally liable. Owner liable for all debts.	Limited liability for all shareholders. Shareholders not liable for corporate debts. Piercing the corporate veil allowed	Limited liability for all shareholders. Shareholders not liable for corporate debts. Piercing the corporate veil allowed	All partners are personally liable. All partners are jointly and severally liable for all partnership debts. No veil piercing theories
Tax Treatment	Generally treated as a partnership or sole proprietorship. Subject to one level of tax. May be taxed as a “C” or “S” corporation. Distributions may be subject to self-employment income tax.	Always taxed as a sole proprietorship	Generally taxed as a “C” corporation. Shareholders subject to double taxation. No self-employment income tax on distributions	Always taxed as a “S” corporation - one level of tax - but can lose “S” status. Shareholders not subject to double taxation. No self-employment income tax on distributions in most cases	Always taxed as a partnership – one level of tax.
Corporate Maintenance	Very few corporate formalities. Significantly easier to maintain than a corporation.	None	Formality requirements (e.g. annual reports, minutes, meetings) are required to maintain corporate status.	More formality requirements than an LLC	None
Owners	One or more members. Can have single member LLC. No limit on maximum number of members	Single owner only. Cannot have two or more owners	One or more shareholders. Can have single owner corporation. No limit on maximum number of shareholders	One or more shareholders. Can have single owner corporation. Limit to hundred shareholders. Limit in type of shareholders	Two or more partners required. Cannot have single partner partnership. No limit on maximum number of members
Ownership Interests	May share in profits and losses. May participate in management. Interest may be treated differently. Restrictions can prevent interest from being assigned or transferred	Entire business owned by owner. All property is personal property of owner. All profits and losses belong to owner. All management controlled by owner	May receive dividends. May participate in management. Free transferability of stock. Each stock class must be treated identically but can have different classes of stock	May receive dividends. May participate in management. Free transferability of stock. Limited to one class of stock but can have different voting rights	Right to share in profits and losses. Right to participate in management. Interest may be assignable.