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Comparison

Factors
Business
formation

Size
Length of
Existence

Liability

Sole
General Partnership Limited Liability Company
Proprietorship
(GP)
(LLC)
(SP)
City tax license
No state filing required. Required to file formation
may be required. Some states allow GPs document with the State filing
to file at state agency. An agency. Most states require an
No state filing
Agreement between two Operating Agreement
required
or more parties.
Partnership agreement
should be created
One person
Two or more person
Most states allow single
ownership
ownership
member LLCs but some
require 2 or more members
Sole proprietorship Depending upon
Some states allow LLCs to
either ceases doing partnership agreement. have a perpetual existence.
business or dies Typically death or
Others depend upon the states
withdrawal of a partner requirements
dissolves the GP

C Corporation - General
Stock (C Corp)

Required to file formation


document with the State
filing agency. Most states
require annual meetings and
bylaws. Must elect S status
through the IRS, additional
filing required
Up to 75 members/
shareholders

Required to file formation


document with the State filing
agency. Most states require
annual meetings and bylaws

Perpetual

Perpetual

Unlimited

General Partners are


equally liable or less the
partnership agreement
states otherwise

Members are not liable for


debts accrued by the company
or less a member secured the
debt with a personal asset

Cost of business tax


license. In California, a
GP can be filed in the
county of business
and/or at the State level;
state filing fee applies
$70
Management SP is in complete Or less the partnership
control of
agreement states
managing
otherwise, each partner
operations
has equal management
authority

State filing fee is required. $70


+ $800 annual minimum tax
every year. Local city and
county registration fees may
apply.

Taxation

Taxed Once

Taxed Once

Taxed Once

Yes

Yes

Yes

Double; both the corporation


and shareholders are taxed
No

No. Or less
No.
business is sold to
another party
Hard to get outside Partners contribute
capital. Owner
capital and more capital
typically
can be raised by adding
contributes all
new partners
funds
Easiest
Easy

Depends upon the operating


agreement

Yes. Some IRS regulations


on stock ownership

Shares of stock are easily


transferred

Some operating agreements


allow interests to be sold

S Corps can sell stock to


raise capital

C Corps can sell stock to raise


capital

Mom & Pop Ice Small business with 2 or


cream shop, arts more trusted partners.
and crafts shop,
graphic designer or brothers or two good
a website
friends form a General
developer
Partnership for an auto

Real Estate Investment


Property, Motion Picture, or
restaurant. In California, an
LLC cannot require a
professional license to operate
such as a Contractor's license,
Real Estate license, or a
Cosmetology license.

Operational
Procedures

SP has unlimited
liability and can
lose personal
assets

S Corporation (S Corp)

Shareholders are typically


Shareholders are typically not
not liable for the debts of the liable for the debts of the
corporation. Some officers corporation. Some officers can
can be held liable if there is be held liable if there is fraud
fraud or severe
or severe mismanagement
mismanagement.
Easiest with few Typically GPs have few Most states have some formal Annual meetings, filings, and Annual meetings, filings, and
legal requirements legal requirements
requirements like annual
reporting required. Board of reporting required. Board of
reports but are typically less Directors and Officers must Directors and Officers must be
than a corporation
be maintained.
maintained.

Start up costs Cost of business


listed apply to tax license
California
business
entities only.

Taxed Once

Pass through Yes


taxation for
both income
and loss
Interest
Transferabilit
y
Raising
Capital

Dissolution

Examples

repair shop.

State filing fee is required.


$100 + $800 annual
minimum tax starting the
second year. Local city and
county registration fees may
apply.

State filing fee is required.


$100 + $800 annual minimum
tax starting the second year.
Local city and county
registration fees may apply.

Management is outlined in the Officers manage day to day Officers manage day to day
LLCs Operating Agreement. corporate activities. Directors corporate activities. Directors
manage the officers and the manage the officers and the
overall company. Directors overall company. Directors are
are elected and therefore
elected and therefore managed
managed by the shareholders by the shareholders

Complex. Requires filing


Most Complex. Requires
Most Complex. Requires
dissolution document with
filing dissolution document filing dissolution document
state filing agency. Some states with state filing agency.
with state filing agency. Some
require a tax clearance prior to Some states require a tax
states require a tax clearance
dissolution.
clearance prior to dissolution. prior to dissolution.
Small business or Family
Public Corporation. Software
business such as a print shop, company, telecommunications
Pizza Parlor, or Interior
company, Automobile maker,
Design.
etc.

Sole Trader Partnership

Close
Corporation

Private
Company

Public
Company

No specific
requirements

No specific
requirements

CC

(Pty) Ltd
Propriety
Limited

Ltd

No. of
Owners

2 - 20

1 - 10

1 -50

7 - number of
shares issued

Name of
Owners

Owner

Partners

Members

Shareholders

Shareholders

Liability

Unlimited

Unlimited

Limited

Limited

Limited

Limited

Unlimited

Unlimited

Unlimited

Unlimited

All/some
partners

All/some
members

Name

Continuity

Owner (does
not have to
Managed By physically be
present)

Capital

At least 1
Minimum 2
director elected directors, elected
by shareholders by shareholders

A maximum of
Contributed or Contributed or 50 selected
Contributed by
loans by
borrowed by
shareholders
the owner
partners
members
contribute the
capital
Partnership
Agreement
(P.A)/ Articles

Memorandum,
Memorandum &
Articles of
Articles of
Association and
Association
a Prospectus

Formation

No
requirements

Payment to
Owners

Divided
Paid
between
according to
All profits paid
partners
% interest
to the owner
according to
held by each
the Partnership
member
Agreement

Availability
of Financial
Information

Info freely
Only available available to the
Only available
Only available Only available
to shareholders
public. Not
to members of
to the owner to the partners
& perspective
confidential the CC
shareholders
involves many
people

Type of
Taxation

Taxed on
owners
personal
capacity

Taxed on
partners
personal
capacity

Founding
Statement

Selling of share
to the public

Dividends per
Dividends per
share
share depending
depending on
on no. of shares
no. of shares

Pays
Pays Company Pays Company
Company Tax
Tax
Tax