"Choice of Entities"

At A Glance...........

Major Forms of Businesses:

1. Sole Proprietorships

2. Regular or "C" Corporations

3. "S" Corporations

4. General Partnerships

5. Limited Partnerships

6. Limited Liability Companies (LLC)

7. Tax Exempt Organizations

The categories discussed below are the type of entity; taxation; personal liability; number and types of shareholders; transferability of interest; fringe benefits; management; distribution of income and losses to owners; and required form to file.

Sole Proprietorships

1. Business and its owner are a single legal entity.

2. Non-taxable entity.

1. Complete personal liability.

2. Business loses value with the illness or death of owner.

Regular or "C" Corporations

1. Separate legal entity provided required 

    formalities are observed.

2. Limited liability protection.

3. Unlimited number and type of shareholders.

4. Freely transferable interests.

5. Favorable tax treatments in providing 

    benefits.

6. Shareholders elect directors and officers of company.

1. Subject to double taxation.

2. No special allocation of tax benefits to 

    owners.

3. Subject to a number of rules and restrictions 

    with regard to its operation.

    

                  

                                   

 

"S" Corporations

1. Separate legal entity provided required 

    formalities are observed.

2. Single taxation.

3. Limited liability protection.

4. Pass through entity.

5. Shareholders elect directors and officers of company.

 

1. Limited number and type of shareholders.

2. Issue only one type of stock.

3. Limited transferability of interests.

General Partnerships

1. Non-corporate entity comprised of two or more owners.

2. Single taxation.

3. Unlimited number and type of partners.

4. Pass through entity.

5. Special allocation of tax benefits.

6. Equal rights to manage business except 

    restricted by partnership agreement.

 

1. Personal liability for business debts.

2. Limited transferability of interests.

                         

               

Limited Partnerships

1. Non-corporate entity comprised of at least two limited partners and one general partner.

2. Single taxation.

3. Unlimited number and type of partners.

4. Pass through entity.

5. Managed by general partner.

6. Special allocation of tax benefits.

7. Unrestricted transferable interest.

1. No participation of limited partners in management.

2. personal liability of general partner.

3. Subject to passive loss rules for limited 

    partners.

                 

 

      

Limited Liability Companies (LLC)

1. Hybrid entity (corporate and partnership).

2. Limited liability protection.

3. Single taxation.

4. Unlimited number and type of members.

5. Special allocation of tax benefits.

6. Members participate in management or elect directors and officers.

1. Varying tax and non-tax issues.

2. Certain characteristic requirements for pass through tax treatment..

                           

 

      

 

Tax Exempt Organizations

1. Tax exempt organization (Code Section 501)

2. Net revenue is non-taxable with exceptions.

3. Support is given through private and public foundations.

1. Individual owners are not allowed.

2. Difficult to obtain or to qualify.

3. Assets revert back to government upon 

    dissolution.