TYPE OF BUSINESS
LEGAL STRUCTURE
|
OWNERSHIP |
CONTROL |
LIABILITY |
TAXES |
Can Owners
Deduct losses from their personal tax payments |
Can you decide income or expenses to allocate among
owners regardless of the capital each invests? |
ADVANTAGES |
DISADVANTAGES |
FEE(INCLUDES FILING FEE) |
|
Sole Proprietorship |
Individual |
Controlled by
Owner |
Owner is
personally liable for all business debts |
All business
income is considered personal income to the owner and is taxed at
personal income tax rates |
yes |
N/A |
Easy
set up and understand - best way to start if you don't have a lot of
personal wealth |
Personal
liability, self-employment tax |
See Prices |
|
General Partnership |
Two or more
individuals or other entities (sometimes with partnership agreement) |
Partners control
with partnership agreement |
All partners are
liable for all partnership debts |
Partners’ share
income or loss included on the income tax return of the
partner and taxed at personal or corporate rates |
yes |
yes |
can allocate income and expenses as
agreed among partners |
Liable for actions of
other partners. Self-employment tax. |
See Prices |
|
Limited Partnership
|
Two or more
owners / general partners and limited partners |
General
partner(s) may end partnership at their discretion, limited partners
do no have this option. |
Limited partners
are only liable to extent of capital invested |
Same as general
partnership |
yes |
yes |
|
Liable for actions of
other partners. Self-employment tax. |
|
|
“C” Corporation |
Shareholders
(Unlimited number) |
Oownership
through stock, and business is managed through a Board of Directors;
Other legal regulations also apply |
Shareholder
liability is limited to amount of capital contributed unless also
acting as guarantor of debt |
Corporation pay
tax on business income at corporate tax rate; profits distributed to
shareholders and are taxed at personal income tax rate |
no |
no |
100% deductible health
insurance, fully deductible medical reimbursement and
fringe benefits plans, up to $50,000 profits are taxed
at 15% if left in the corporation rather than at your
higher, personal income tax rate. |
cannot use corp. expenses to offset your personal
income. if corp. has a lot of profits, doublet taxation
occurs |
See Prices |
|
“S” Corporation
|
Shareholders |
Same as “C”
Corporation |
Same as “C”
Corporation |
Corporation not
taxed; income is taxable to the shareholders at their personal
income tax rate |
yes |
no |
No Social Security or
Medicare taxes |
no health insurance deduction and limited deductions for
home office |
See Prices |
|
Limited Liability
Company |
One or more
members |
Controlled by
members or managers, as set out in operating agreement |
Generally, same
as “C” Corporation above |
Taxed as
partnership, corporation or may be disregarded depending on election
made. |
yes |
yes |
|
|
See Prices |
|
Limited Liability
Partnership |
Two or more
owners; limited partners |
Controlled by
partners in accordance with partnership agreement |
Limited and
General partners only liable of capital invested |
Same as general
partnership |
yes |
yes |
Limited Liability as in a
corporation with pass through income benefits of a
partnership.
|
Self employment tax, unsettled, and insufficient law
issues as to the legal and tax treatment of this entity. |
|