IMAGE TEXT. Build WorkSource

Building Business and Careers

  • Facebook

By Milt Wright and Anita Lee Wright
Milt Wright & Associates

Different Types of Business Structure

Chartacteristics Sole

Proprietorship

General
Partnership
Limited
Liability Company
S-Corporation
Corporation
Formation
No
permission required
Agreement
of Parties involved. No permission required
File
with state for permission
File
with state for permission
File
with state for permission

Duration

Dependent on sole proprietership
Dissolved by death of partner or bankruptcy
typically limited to a fixed amount of time
Perpetual
Perpetual
Liability

Sole
prprietor has unlimited liability
Partners have unlimited liability
Members not typically liable for the debts of the LLC
Shareholders are typically not personnaly liable for the debts of the corporation
Shareholders are typically not personnaly liable for the debts of the corporation

Simplicity
of Operaton

Relatively
few legal requirements
Relatively
few legal requirements
Some
formal requirements but less formal than corporations
Formality
of a board of directors, officers, annual meetings
and annual reporting
Formality
of a board of directors, officers, annual meetings
and annual reporting
Management

Full
control of Management and operations
Typically
each partner has an equal voice unless otherwise
arranged
Members
have operating agreement that outlines management
The
corporation is managed by the board of directors
who are elected by the shareholders
The
corporation is managed by the board of directors
who are elected by the shareholders

Taxation

No
taxable entity. Sole proprietor pay all taxes
Each
partner pays tax on his/her share of the income
and can deduct losses against other sources of income
If
properly structured there is no tax at the entry
level. Income/loss is passed through to the members
of the LLC
No
tax at entity level. Income/loss is passed through
to the share hol;ders
Corporation
is a taxable entity
Pass
through Income/Loss

Yes
Yes
Yes
Yes
No,
corporate losses can’t be deducted by shareholders

Double Taxation

No
No
No
No
Yes
Cost of Creation

None
None
Filling
fee with the state
Filling
fee with the state
Filling
fee with the state
Raising
Capital
Difficult
unless individual puts in money
Contributions
from partners or an addition of more partners
Possible
to sell interests. Subject to operating agreement
restrictions
Sell
shares of stock to raise capitol
Sell
shares of stock to raise capitol
Transferability of Interest

No
No
Possibly
Yes,
subject to consent
Shares
of stock in a corporation are easily transferable

Double Taxation:

Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities which are not subject to the double tax.

Pass-Through Taxation:

The income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is “passed through” the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns. S corporations and LLCs are both pass-through tax entities.

*The Build WorkSource web site provides material on topics of interest to businesses. It is not intended as legal advice or to answer specific legal or employment problems. The information presented in the Build WorkSource web site is from many sources therefore there can be no warranty or responsibility as to the accuracy, originality or completeness. Build WorkSource is not engaged in rendering legal or other professional counsel.

Sponsors

  • Build Rehabilitation Industries
  • Build Specialty Products
  • Build Contract Packaging
  • Build Worksource General Partners