| Characteristics |
Sole
Proprietorship
|
C
Corporation
|
S
Corporation
|
Limited Liability
Company
|
| Recommended For |
Owners
wanting to legally do business as a particular
name without having to create an entirely new
or amend and existing business
entity |
Owners
needing maximum tax and ownership flexibility,
combined with liability protection and foreign
owners. |
Owners
wanting the liability protection of a
corporation, with the simplicity of
pass-through taxation of income. US citizens
only. |
Owners
wanting the simplicity of pass-through income
taxation and the liability protection of a
corporation with less formalities. |
|
Formation
|
No state filing
required.
|
State filing
required.
|
State filing
required.
|
State filing
required.
|
|
Duration of
Existence
|
Dissolved if entity
ceases doing business or upon death of the
sole proprietor.
|
Perpetual
|
Perpetual
|
Dependent on the
requirements imposed by the state of
formation.
|
|
Liability
|
Sole proprietor has
unlimited liability.
|
Shareholders are
typically not responsible for the debts of
the corporation.
|
Shareholders are
typically not responsible for the debts of
the corporation.
|
Members are not
typically liable for the debts of the
LLC.
|
|
Operational
Requirements
|
Relatively few legal
requirements.
|
Board of directors,
annual meetings and annual reporting
required.
|
Board of directors,
annual meetings and annual reporting
required.
|
Some formal
requirements but less formal than
corporations.
|
|
Management
|
Sole proprietor has
full control of management and
operations.
|
Managed by the
directors, who are elected by the
shareholders.
|
Managed by the
directors, who are elected by the
shareholders.
|
Members have an
operating agreement that outlines
management.
|
|
Taxation
|
Not a taxable entity.
Sole proprietor pays all taxes.
|
Taxed at the entity
level. If dividends are distributed to
shareholders, dividends are also taxed at
the individual level.
|
No tax at the entity
level. Income/loss is passed through to the
shareholders.
|
If properly
structured there is no tax at the entity
level. Income/loss is passed through to
members.
|
| Pass Through
Income/Loss |
Yes
|
No
|
Yes
|
Yes
|
|
Double
Taxation
|
No
|
Yes, if income is
distributed to shareholders in the form of
dividends.
|
No
|
No
|
|
Cost of
Creation
|
None
|
State filing fee
required.
|
State filing fee
required.
|
State filing fee
required.
|
|
Raising
Capital
|
Often difficult
unless individual contributes funds.
|
Shares of stock are
sold to raise capital.
|
Shares of stock are
sold to raise capital.
|
Possible to sell
interests, though subject to operating
agreement restrictions.
|
| Transferability of
Interest |
No
|
Shares of stock are
easily transferred.
|
Yes, but must observe
IRS regulations on who can own
stock.
|
Possibly, depending
on restrictions outlined in the operating
agreement.
|
