| Characteristics | Sole Proprietorship | General Partnership | Limited Liability Company | S Corp | Corporation |
|---|---|---|---|---|---|
| Formation | Just one owner. No state filing required | Two or more owners, called partners. No state filing required. | State filing required; most states do not require more than one owner. Owners are called members | State filing required. One or more owners, called shareholders. Restrictions on who can be an owner. | State filing required. One or more owners, called shareholders. |
| Duration of Existence | Dissolved if sole proprietor ceases doing business or dies | Dissolves upon death or withdrawal of a partner unless safeguards are in place in a partnership agreement. | Most states allow perpetual duration. | Perpetual | Perpetual |
| Liability | Sole proprietor has unlimited liability | All partners have unlimited liability | Members not typically personally liable for the debts of the LLC, beyond the amount they invest in the LLC. | Shareholders are typically not personally liable for the debts of the corporation beyond the amount they invest in the corporation. | Shareholders are typically not personably liable for the debts of the corporation beyond the amount they invest in the corporation. |
| Operational Requirements | Relatively few legal formalities. | Relatively few legal formalities. | Some formal requirements but less formal than corporations. | Board of directors, officers, annual meetings, and annual reporting required | Board of directors, officers, annual meetings, and annual reporting required |
| Management | Sole proprietor has full control of management and operations | Typically each partner has an equal voice, unless they have agreed otherwise. | Members have an operating agreement (called regulations in Texas) that outlines management | Managed by the directors, who are elected by the shareholders | Managed by the directors, who are elected by the shareholders |
| Taxation | Not a taxable entity. Sole proprietor pays all taxes | Not a taxable entity. Each partner pays tax on his/her share of income and can deduct losses against other sources of income | Members can elect to be taxed either as a partnership or a corporation. | No tax at the entity level. Income/loss is passed through to the shareholders | Taxed at the entity level. Also, If dividends are distributed to shareholders, dividend income is taxed at the individual level. |
| Pass Through Income/Loss | Yes | Yes | Yes or No, depending on the election made by the members. | Yes | No |
| Double Taxation | No | No | Yes or No, depending on the election made by the members. | No | Yes, if income is distributed to shareholders in the form of dividends. |
| Cost of Creation | None | None | State filing fee required | State filing fee required | State filing fee required |
| Raising Capital | Often difficult unless individual contributes funds | Contributions can be made from partners, and more partners can be added | Possible to sell interests, though subject to operating agreement restrictions | Shares of stock may be sold to raise capital | Shares of stock may be sold to raise capital |
| Transferability of Interest | No | No | Possibly, depending on restrictions outlined in the operating agreement | Yes, but must observe IRS regulations on who can own stock | Shares of stock are easily transferred, in the absence of a Shareholder’s agreement that places limitations on transfers. |
