A variety of entity types are available to those who seek to start a new business. The appropriate type depends entirely on the business's needs. Below is a chart to help illustrate the key distinctions among the various business entities.
Characteristics / Entities | Ownership | Personal Liability of Owners | Tax Treatment | Key Documents for Formation | Management of the Business | Capital Contributions |
C Corporations | Unlimited number of shareholders allowed; no limit on stock classes | Generally no personal liability of the shareholders for the obligations of the corporation | Corporation taxed on its earnings at the corporate level and the shareholders have a further tax on any dividends distributed (double taxation) | Articles of Incorporation Bylaws Organizational Board Resolutions Articles of Incorporation Stock Certificates Stock Ledger | Board of Directors has overall management responsibility and officers have day-to-day responsibility | Shareholders typically purchase stock in the corporation, either common or preferred |
S Corporations | Up to 75 shareholders allowed; only one basic class of stock allowed | Generally no personal liability of the shareholders for the obligations of the corporation | Entity generally not taxed as the profits and losses are passed through to the shareholders (pass-through taxation) | Articles of Incorporation Bylaws Organizational Board Resolutions Articles of Incorporation Stock Certificates Stock Ledger IRS & State S Corporation election | Board of Directors has overall management responsibility and officers have day-to-day responsibility | Shareholders typically purchase stock in the corporation, but only one class of stock is allowed |
Sole Proprietorship | One owner | Unlimited personal liability for the obligations of the business | Entity not taxed, as the profits and losses are passed through to the sole proprietor | DBA filing | Sole proprietor manages the business | Sole proprietor contributes whatever capital needed |
General Partnership | Unlimited number of general partners allowed | Unlimited personal liability of the general partners for the obligations of the business | Entity not taxed as the profits and losses are passed through to the general partners | General Partnership Agreement Local filings if partnership holds real estate | The general partners have equal management rights, unless they agree otherwise | The general partners typically contribute money or services to the partnership, and receive an interest in profits and losses |
Limited Partnership (LP) | Unlimited number of general and limited partners allowed | Unlimited personal liability of the general partners for the obligations of the business; limited partners generally have no personal liability | Entity not taxed, as the profits and losses are passed through to the general and limited partners | Limited Partnership Certificate Limited Partnership Agreement | The general partner manages the business, subject to any limitations of the Limited Partnership Agreement | The general and limited partners typically contribute money or services to the limited partnership, and receive an interest in profits and losses |
Limited Liability Company (LLC) | Unlimited number of members allowed | Generally no personal liability of the members for obligations of the business | Entity not taxed (unless chosen to be taxed), as the profits and losses are passed through to the members | An "Articles of Organization" form is used in most states. A "Certificate of Formation" is used in DE, ID, IA, MA, MS, NE, NH, PA, TX & WA. An "Operating Agreement" | The Operating Agreement sets forth how the business is to be managed. Either one or multiple members or managers are designated to manage the business. | The members typically contribute money or services to the LLC, and receive an interest in profits and losses |