Comparison of Entities for Doing Business
LLC
S Corp
C Corp
Partnership
Proprietorship
BUSINESS FORMATION and MANAGEMENT
State filing
required
Articles of
organization are
filed with fee of $
Articles of incorporation are
filed with fee of $
Articles of
incorporation are filed
with fee of $
Ongoing state
$800 franchise tax
$800 franchise tax due
$800 franchise tax
filings and fees
due annually
annually
due annually
Maybe, if limited
partnership
None
None. DBA filing if
using fictitious
business name
None
Adopt and maintain
Corporate
formalities
None. Operational
Adopt and maintain bylaws,
formalities are
hold and document initial and
governed by the
annual meetings of directors
Operating
and shareholders, issue stock
Agreement
Record stock transfers
bylaws,
hold and document
initial and annual
See LP securities
meetings of directors
filings below
None
and shareholders,
issue stock
Record stock transfers
Securities issues
Register – no more than 75
Register – can have
shareholders – only one class
multiple classes of
of stock
stock
agreement
Directors, elected by
Directors, elected by
Member-managed
shareholders; Officers
shareholders; Officers
or manager-
appointed by directors
appointed by
Register
Operating
Flexible
management
managed
Must use accrual
Accounting
accounting system
in most cases
None unless limited
partnership, offering
of LP interest is a
None
security
Managed by
general partners
Owner has full
per partnership
control
agreement
Can elect cash or
Can elect cash or
Can elect cash or
accrual method of
accrual method of
accrual method of
accounting
accounting
accounting
citizens or permanent
Tax, accounting and
Simple unless
residents in good standing,
legal complicated
limited partners
Can elect cash or accrual
method of accounting
Tax and legal complicated,
shareholders must be US
Complexity
Simple
Simple
must elect “S” status within
first 75 days of formation
May be owned by
Ownership
another business
vs. individuals
Passive losses cannot exceed
25% or revenue for 3
consecutive years or “S” status
will be revoked
May be owned by
another business vs.
individuals
Owned by partners
– another business
entity may be a
Individual
partner
BENEFITS
Owners not
Limited liability
protection
personally
Owners not personally
responsible for
responsible for business debts
business debts and
and liabilities
liabilities
Owners not personally
responsible for
Owners have
Owner has unlimited
business debts and
unlimited liability
liability
liabilities
Perpetual
duration of
business
Dissolves when
Maybe
Yes
Yes
owner ceased to do
business or dies
Comparison of Entities for Doing Business
LLC
S Corp
May sell interests,
Ease of raising
but subject to
Shares of stock can be sold to
capital
operating
raise capital
agreement
C Corp
Shares of Stock can
be sold to raise
capital
Partnership
Proprietorship
Can convert to
limited partnership
and sell LP interests
No
to raise capital
Depends on
operating
Ease of adding
and transferring
ownership
agreement.
Stock easily sold or change
Stock easily sold or
Payment for
existing owner percentages of
change existing owner
services with
ownership, IRS limits number
percentages of
member shares is
of shareholders to 100
ownership
taxable (see note)
1
Controlled by
partnership
agreement
No formalities
Comparison of Entities for Doing Business
TAXATION
Automatically taxed as a
proprietorship (1 owner)
Pays taxes on
or as a partnership
corporate income,
Business taxed
(multiple owners), but
at entity level
may elect to be taxed as a
No – pass through
owners can split profit
and loss with business
C Corp, that pays taxes at
to lower overall tax
business level on LLC
rate
No
No
income
Partner share of
Profits/losses reported on
Profits/losses reported
Pass through
owner personal tax
on owner personal tax
income/losses
returns, tax paid at
returns, tax paid at
individual level
individual level
Taken on
corporation’s tax
returns
profits/losses
reported on owner
personal tax returns,
tax paid at individual
level
Profits/losses
reported on owner
personal tax returns,
tax paid at
individual level
“Reasonable salary”
Employment
taxes
paid to ownerProfits subject to SE tax
employees are subject
to SS and Medicare
Paid on wages, not on
dividends
None
Profits subject to SE
tax
taxes (same as SE tax)
Corporate income
taxed at business level
Double taxation
No
No
and at individual level
No
No
in the form of
dividends
1. If a potential member of an LLC is paid for services rendered in the form of membership shares, the transfer is treated as guaranteed interest and
thus gross income and subjects the payment to taxation at the fair market value of the shares. This taxation can be circumvented if the new member
immediately makes a capital contribution or transfers assets to the LLC. If in cash form, the amount can be as little as $500 contributed.
Web resources:
C corp., S corp. or partnership?, John Ransom, Porter & Hedges LLP http://www.porterhedges.com/NewsPublications/portalresource/100207%20C%20Corp%20S%20Corp%20or%20Partnership
Should Your Business Be and LLC or and S Corp? Darren Dahl, Inc. - http://www.inc.com/guides/201103/s-corp-vs-llc.html