| Characteristics |
Sole
Proprietorship
|
General
Partnership
|
Limited
Partnership |
Limited Liability
Partnership |
|
Formation
|
No state filing
required.
|
Agreement between two
or more parties. No state filing
required.
|
State
filing required. |
State
filing required. In CA & NY the use of LLP
is limited to accountants &
lawyers. |
|
Duration of
Existence
|
Dissolved if entity
ceases doing business or upon death of the
sole proprietor.
|
Dissolves upon death
or withdrawal of a partner unless
safeguards are specified in a partnership
agreement.
|
Perpetual |
Dependent
on the requirements imposed by the state of
formation. |
|
Liability
|
Sole proprietor has
unlimited liability.
|
Partners have
unlimited liability.
|
At least
one general partner has unlimited
liability. |
Partners
are not typically responsible for the debts of
the LLP. |
|
Operational
Requirements
|
Relatively few legal
requirements.
|
Relatively few legal
requirements.
|
Some
formal requirements, but less formal than
corporations. |
DE, GA,
PA, TX & VA require an LLP to carry
insurance or an escrow account to cover
liabilities. |
|
Management
|
Sole proprietor has
full control of management and
operations.
|
Typically each
partner has an equal voice, unless
otherwise arranged.
|
Limited
partners are excluded from management unless
they serve on the board of
directors. |
All partners have the
right to manage the business
directly.
|
|
Taxation
|
Not a taxable entity.
Sole proprietor pays all taxes.
|
Not a taxable entity.
Each partner pays tax on his/her share of
income & can deduct losses against
other sources of income.
|
Files
taxes as separate entity, must meet certain
criteria to avoid being taxed as a
corporation. |
Files
taxes as a separate entity, must meet certain
criteria to avoid being taxed as a
corporation. |
| Pass Through
Income/Loss |
Yes
|
Yes
|
Yes, if
requirements are fulfilled. |
Yes, if
requirements are fulfilled. |
|
Double
Taxation
|
No
|
No
|
No |
No |
|
Cost of
Creation
|
None
|
None
|
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
|
Contributions can be made from
partners and more partners can be
added. |
Contributions can be made from
partners and more partners can be
added. |
| Transferability of
Interest |
No
|
No
|
Yes,
pending approval of other limited partners and
the general partners. |
Possible,
dependent on operating agreement
restrictions. |
