Sole

Proprietorship General Partnerships Limited Partnerships

C-Corporations S-Corporations

Advantages: Low All profits go to owner start-up costs & All profits go to owner Freedom from most regulations Owner has direct control Easy to exit business Disadvantages Unlimited personal liability Personal finances at risk Total responsibility May be more difficult to raise financing

Each partner should bring specific advantages to the business like capital, industry knowledge, labor or physical assets

Income and losses pass through to partners and are taxed at personal rate

They do not require registration with local, state or federal governments

Businesses having two or more owners

Advantages: Ease of formation Pooled talent and Resources Somewhat easier access to financing Some tax benefits Disadvantages Unlimited personal liability Divided authority and decisions Potential for conflict Continuity of transfer of ownership

Limited liability, although one partners must retain unlimited liability Income and losses pass through to partner and are taxed at personal rate; flexibility in profit-loss allocations to partner
consist of general partners with full liability for the organization & limited partners whose liability for the organization are limited to a set amount (usually the amount of their investment)

They do require registration with local, state or hfederal governments

Advantages: Good way to acquire capital from limited partners Disadvantages Cost and complexity of forming can be high Limited partners cannot participate in management of business without losing liability protection

The control and operation of a corporation are in the hands of the shareholders who tend to operate with a board of directors

Corporations provide limited liability for the owners as well. This means that the owners cannot be sued for the debts of the corporation unless they personally guaranteed the debts They do require registration with local, state or federal governments

C-Corporations are organized with ownership of shares of stock which are assignable and transferable. In theory, corporations are separate legal entities from the owners

Advantages: Limited liability Transferable ownership Continuous existence Easier access to resources Disadvantages Expensive to set up Closely regulated Double taxation Extensive record keeping Charter restrictions

Income and losses pass through to partners and are taxed at personal rate. They do require registration with local, state or federal governments

Up to 75 share-holders; no limits on types of stock or voting

The corporations profits or losses are passed through to the shareholders. The share holders then must report profits as supplemental income.

Advantages: Easy to set up Enjoy limited liability protection and tax benefits of partnership Can have a tax-exempt entity as a shareholder Disadvantages Must meet certain requirements May limit future financing options

Income and losses pass through to partners and are taxed at personal rate; flexibility in profit-loss allocation to partners Unlimited numbers of share holders

They do require registration with local, state or federal governments

Unlimited number of members; flexible membership arrangements for voting rights and income.

Advantages: Greater flexibility Not constrained by regulations on C and S corporations Taxed as partnership, not as corporation Disadvantages Cost of switching from one form to this can be high Need legal and financial advice in forming operating agreement

Structure S corporation

Ownership Requirements Up to 75 share-holders; no limits on types of stock or voting arrangements

Tax Treatment Income and losses pass through to partners and are taxed at personal rate; flexibility in profit-loss allocation to partners

Liability Limited

Advantages Easy to set up Enjoy limited liability protection and tax benefits of partnership Can have a taxexempt entity as a shareholder

Drawbacks Must meet certain requirements May limit future financing options

Limited liability company (LLC)

Unlimited number of members; flexible membership arrangements for voting rights and income

Income and losses pass through to partners and are taxed at personal rate; flexibility in profit-loss allocations to partners

Limited

Greater flexibility Not constrained by regulations on C and S corporations Taxed as partnership, not as corporation

Cost of switching from one form to this can be high Need legal and financial advice in forming operating agreement

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2007 Prentice Hall, Inc. All rights reserved.

Structure Limited liability partnership (LLP)

Ownership Requirements Two or more owners

Tax Treatment Income and losses pass through to partner and are taxed at personal rate; flexibility in profit-loss allocations to partners Dividend income is taxed at corporate and personal shareholder levels; losses and deductions are corporate

Liability Limited, although one partners must retain unlimited liability

Advantages Good way to acquire capital from limited partners

Drawbacks Cost and complexity of forming can be high Limited partners cannot participate in management of business without losing liability protection Expensive to set up Closely regulated Double taxation Extensive record keeping Charter restrictions

C corporation

Unlimited number of shareholders; no limits on types of stock or voting arrangements

Limited

Limited liability Transferable ownership Continuous existence Easier access to resources

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2007 Prentice Hall, Inc. All rights reserved.