| Sole Proprietorship |
A business entity which has no separate existence from its owner, which is generally one individual. Can do business in another name (for example: Johnny's Lawn Service). Business dissolves by owner death. |
Owner is personally liable for ALL business debts. |
The simplest type of business to form and no separate business tax return to file. |
Taxed as ordinary income to the owner and the tax rate corresponds to the owner's tax bracket. Schedule C is filed with the owner's personal return and a separate business return is not filed. |
| General Partnership |
A business operated by two or more general partners. Partners can be either individuals or business entities. Partnership will dissolve by death or withdrawal of a general partner. |
General Partners are often jointly and severally liable for the partnership debts and personal assets are vulnerable for repayment of debts. |
General Partnerships are very easy to form and do not require completing business tax returns. |
Profits are not directly taxed, but are passed through to the partners' personal tax returns as specified in the Partnership Agreement. |
| Limited Partnership |
Similar to a General Partnership except that in addition to being made up of a least one general partner, there are also one or more limited partners. |
General Partners control the activities of the business and have full liability but limited partners usually do not manage the business activities and are not liable for business debts. |
Limited Partners are merely investors, who provide capital without assuming liability. |
Generally, profits are taxed to the partners based on the Partnership Agreement. The partnership files separate tax returns using Form 1065. |
| Joint Venture |
An entity formed between two or more parties to undertake economic activity together. Joint ventures can be formed by most persons (e.g., individuals, corporations) and can be organized in a variety of ways. |
Depending upon the structure of the organization of the joint venture, owner liability varies. |
Joint Venture typically ends upon completion of business project. All parties generally share in equity, revenue, expenses and control of the venture. |
Depending upon the joint venture's business organization, the tax structure will vary. |
| C-Corporation |
A legal entity owned by shareholders and generally has officers, directors and employees. |
The Corporation is responsible for its own debts. Shareholders are liable only for the investment in the Corporation. |
C-Corporations have unlimited shareholders, and the corporation can continue on despite the death of shareholders, officers or directors. |
Profits are taxed to the corporation at a corporate income tax rate. File form is 1120. |
| S-Corporation |
A legal entity owned by shareholders, and generally
has officers, directors and employees. Limited to 100 shareholders. |
The Corporation is typically responsible for its own debts. Shareholders are liable only for the investment in the Corporation. |
S-Corporations are limited to 100 shareholders, and the corporation can continue on despite the death of shareholders, officers or directors. |
Profits pass through to the shareholders and at the shareholders personal income tax rate. File form is 1120S for the company and K-1 for each shareholder. |
Limited Liability
Company (LLC) |
A legal entity separate which will generally have members and managers and may have officers and directors. |
Similar to Corporations, LLC's generally protect owners from personal liability for business debts. Owner liability is generally limited to the individual's investment in the company. |
LLC's can have unlimited owners, generally, owners can actively participate in management without losing limited liability. |
Often times, LLC's are taxed like a partnership and will file form 1065. |
| Professional Corporation |
A type of business generally reserved for professional services that require a license to practice. |
Individuals cannot avoid liability for his/her malpractice or for those whom he/she supervises and controls, but can limit exposure from malpractice of their associates. |
Owners (partners) can limit their liability of the action of other professionals in the organization. |
Generally, can be organized and taxed as a corporation or LLC. |