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Main Advantages |
Main Disadvantages |
| Sole Proprietorship |
- Easy to create and maintain
- Business and owner are legally the same entity
- No fees associated with the creation of the business entity
- Owner may deduct a net business loss from personal income taxes
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- Owner is personally liable for any debts, judgments or other liabilities of the business
- Owner must pay personal income taxes for all net business profits
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| General Partnership |
- Easy to create and maintain
- No fees associated with creation of the business entity
- Owners may report their share of net business losses on personal income taxes
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- All owners are jointly and personally liable for any debts, judgments or other liabilities of the business
- Owners must pay personal income taxes for all net business profits
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| Limited Partnership |
- Easy to attract investors as they are only liable for their total amount of their investment into the business
- The limited partners enjoy limited liability for any debts, judgments or other liabilities of the business
- The general partners are more free to focus their attention on the business
- General partners are able to raise cash without diminishing their control of the business
- Limited partners can leave the business without dissolving the limited partnership
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- General partners are jointly and personally liable for any debts, judgments or other liabilities of the business
- Can be more expensive to create than a general partnership
- Mainly suited to businesses such as real estate investment groups or in the film industry
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| Regular Corporation |
- Owners of the business enjoy limited liability for the business' debts, judgments and other liabilities
- Some benefits may be deducted as business expenses
- With good accounting, owners and business may be able to pay lower taxes by splitting the business profits among owners
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- More expensive to establish than a sole proprietorship or partnership
- Complicated paperwork that must be filed with the secretary of state
- Corporation must pay its own taxes as a separate tax entity
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| S Corporation |
- Owners of the business enjoy limited liability for the business' debts, judgments and other liabilities
- Owners share the net profits of the business and report their share on personal income taxes
- Owners share the net business loss and can offset other income by reporting this loss on personal income taxes
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- More expensive to establish than a sole proprietorship or partnership
- Paperwork is more complicated than the paperwork required for a LLC, but similar advantages
- The ownership interest of the various owners determines their respective incomes from the profits of the business
- Some benefits are only given to owners that have more than 2% of the business' shares
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| Professional Corporation |
- Owners are not personally liable for the malpractice of other owners
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- More expensive to establish than a sole proprietorship or partnership
- The paperwork and filings may be onerous to owners
- Every owner must be in the same profession as all other owners
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| Nonprofit Corporation |
- Corporation does not pay income taxes on money it receives for a charitable purpose
- Donors that give for a charitable purpose may deduct their donations from income taxes
- Some benefits may be deducted as business expenses
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- The full tax benefits and advantages can only be utilized by businesses that have been incorporated for a charitable, educational, scientific, religious or literary purpose
- If property is transferred to the nonprofit corporation, the property must stay with the corporation. Even if the corporation ends, the property must go to another nonprofit
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| Limited Liability Company (LLC) |
- Owners of the business enjoy limited liability for the business' debts, judgments and other liabilities, even if the owners engage in significant control of the business
- The business profits and losses can be allocated to the owners along different lines than ownership interest (for example, a 10% owner may be allocated 30% of the business' profits)
- Owners can choose how the LLC will be taxed, either as a partnership or a corporation
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- More expensive to establish than a sole proprietorship or partnership
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Professional Limited Liability Company
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- Allows state licensed professionals to enjoy the same advantages as an LLC
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- Same disadvantages as an LLC
- All members must belong to the same profession
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| Limited Liability Partnership |
- Business entities associated with things like law, medicine and accounting normally use this
- Partners are not liable for the malpractice of other partners
- Partners take their share of loss or gain on their personal income taxes
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- Partners remain personally liable for obligations to business creditors, landlords and lenders
- Not every state allows limited liability partnerships
- Often limited to only a select few professions
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