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Business Entity Comparison

When starting a business, it’s essential to select the right structure for your needs. Below, we compare some of the most common business entity types to help you make an informed decision.

Sole Proprietorship

Ownership
Single individual owns and operates the business
Liability
Owner is personally liable for all business debts and obligations
Taxation
Profits are taxed as personal income
Management
Managed solely by the owner
Setup & Maintenance
Simple to set up and maintain, with minimal regulatory requirements

Partnership

Ownership
Two or more individuals share ownership
Liability
General Partners: Full personal liability for business debts; Limited Partners (LP): Liability limited to investment; LLP: Partners protected from other partners' actions, depending on state laws
Taxation
Pass-through taxation (business doesn't pay taxes; income passes to partners)
Management
Decisions are shared between partners, with roles depending on partnership type
Setup & Maintenance
Written agreement not legally required but strongly recommended; state registration may be required depending on location

Limited Liability Company (LLC)

Ownership
Can have a single member (allowed in all states) or multiple members; members may include individuals, LLCs, or corporations; most states impose no maximum limit
Liability
Members are not personally liable if proper business/personal separation is maintained
Taxation
Flexible taxation options (can be taxed as a sole proprietorship, partnership, or corporation)
Management
Can be member-managed or manager-managed
Setup & Maintenance
Requires filing formation documents, such as articles of organization, and often an operating agreement. State filing fees vary widely

Corporation (C Corp)

Ownership
Owned by shareholders; can have multiple stock classes, unlimited U.S. and foreign shareholders, and issue publicly traded stock if registered with the SEC
Liability
Shareholders have limited liability
Taxation
Subject to corporate taxation (entity pays taxes separately from owners), with possible double taxation on dividends
Management
Managed by a board of directors and corporate officers
Setup & Maintenance
More complex setup and strict compliance requirements, including annual meetings and detailed record-keeping

S Corporation

Ownership
Limited to 100 U.S. citizen/resident shareholders, one class of stock; eligible trusts/estates can be shareholders. Certain businesses, such as banks and insurance companies, are ineligible
Liability
Shareholders enjoy limited liability
Taxation
Pass-through taxation; profits and losses are reported on shareholders' personal tax returns
Management
Similar to a C Corporation, with a board of directors and officers
Setup & Maintenance
Requires meeting IRS eligibility criteria, maintaining compliance, and filing for S Corporation status

Nonprofit Organization (501(c)(3))

Ownership
Operated for charitable, educational, religious, scientific, literary, or amateur sports purposes. Can be private foundation or public charity, with different rules for each
Liability
Limited liability for members and directors
Taxation
Tax-exempt if meeting and maintaining IRS 501(c)(3) requirements; annual reporting required (e.g., IRS Form 990). Donors may receive tax deductions
Management
Managed by a board of directors
Setup & Maintenance
Requires state incorporation and applying for tax-exempt status by filing IRS Form 1023 or 1023-EZ. Compliance with state and federal regulations is essential

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