| Characteristics |
Sole
Proprietorship |
General
Partnership |
Limited
Partnership |
"C" Corp |
"S" Corp |
LLC |
| Formalities |
No formal filing
requirements; only compliance with local licensing
requirements applicable to business |
No formal filing
requirements and it is not necessary that there be a
written partnership agreement (although one is
suggested); compliance with local licensing requirements
is necessary |
Filing of Certificate of
Limited Partnership with Secretary of State |
Filing of Articles of
Incorporation with Secretary of State and compliance with
other statutory formalities |
Filing of Articles of
Incorporation with Secretary of State and compliance with
other statutory formalities |
Filing of Articles of
Incorporation with Secretary of State |
| Continuity of Existence |
The proprietorship dies with
the proprietor |
Death or withdrawal of a
partner generally dissolves the partnership |
Death or withdrawal of a
limited partner will not generally dissolve a limited
partnership |
Perpetual existence; no
dissolution upon death of shareholder(s) |
Perpetual existence; no
dissolution upon death of shareholder(s) |
The date of dissolution must
be stated in Articles of Incorporation; death or
withdrawal of a member, or assignment of a member's
interest will generally cause dissociation (dissolution) |
| Liability |
The sole proprietor is
liable for all obligations of the sole proprietorship |
Each partner is liable for
obligations of the partnership |
Limited partner's liability
for obligations of the limited partnership is limited to
such partner's equity investment in the partnership |
Generally, liability of
shareholders for corporate obligations is limited to the
amount of the shareholder's investment in the corporation |
Generally, liability of
shareholders for corporate obligations is limited to the
amount of the shareholder's investment in the corporation |
Generally, liability of
members for obligations of the LLC is limited to the a
member's amount of investment in the LLC |
| Transferability of Interest |
Sole proprietor has complete
freedom to transfer all or any portion of the
proprietorship business, although such transfer
constitutes a transfer of individual assets |
No right to transfer
partnership interest (except right to receive
distributions) without consent of other partners |
Limited partnership
interests generally are freely transferable |
Generally, shares are freely
transferable unless subject to contractual limitations |
Generally, shares are freely
transferable unless subject to contractual limitations |
Interests of members
generally are not freely transferable |
| Management and Control |
Sole proprietor has full
right of management and control over business affairs |
Unless otherwise agreed each
partner has equal right to management and control; each
partner is the agent of the partnership and one partner
can bind all of the other partners to ordinary business
obligations of the partnership |
Limited partners have no
right to exercise management or control over the business
of the partnership and can lose their limited status by
doing so |
Ownership and control are
separate; shareholders do not manage the business in
their capacity as such; business is managed by officers
subject to supervision and control of Board of Directors;
When two or more shareholders exist, serious
consideration should be given to executing a Shareholders'
Agreement clarifying the rights of shareholders among
one another with regard to such matters as sale of stock
to each other or third parties, dissension regarding the
direction of the company, election of directors, etc. |
Ownership and control are
separate; shareholders do not manage the business in
their capacity as such; business is managed by officers
subject to supervision and control of Board of Directors;
When two or more shareholders exist, serious
consideration should be given to executing a Shareholders'
Agreement clarifying the rights of shareholders among
one another with regard to such matters as sale of stock
to each other or third parties, dissension regarding the
direction of the company, election of directors, etc. |
Members may designate one or
more managers (who do not have to be members) or may
reserve the management to themselves; control and
management duties are set out in the Operating
Agreement, which is analogous to the partnership
agreement in the partnership context or the bylaws in the
corporate context |
| Tax |
(1) Single taxation; sole
proprietor reports business income and deductions on
individual tax return;
(2) Self Employment Tax -- 15.3% for 1996 |
A partnership is not a
separate taxable entity; income or loss flows through to
partners |
Flow-through taxation to
limited and general partners |
Separate taxable entity
subject to corporation taxation |
Treated like a partnership
for tax purposes; flow-through taxation to shareholders |
A LLC is treated like a
partnership for tax purposes; income or loss flows
through to the members |
| Sources of Capital |
Limited to funds invested by
sole proprietor, funds borrowed from outsiders, and
income generated from business |
Same as sources for sole
proprietorship except there will be more than one source
of invested funds (i.e., two or more partners rather than
one proprietor) |
Same as general partnership,
except it is generally easier to attract capital with
limited partnership because of passiveness of investment
and limitation of liability |
Similar to partnership and
proprietorship except there is an even greater number of
potential investors because of variety of forms that
corporate investments can take (e.g., differing classes
of common stock, preferred stock, debt instruments, etc.) |
Similar to partnership and
proprietorship except there is an even greater number of
potential investors because of variety of forms that
corporate investments can take (e.g., differing classes
of common stock, preferred stock, debt instruments, etc.) |
Depending on the number of
members, it should generally be easier to attract capital
because of potential sources of invested funds and
limitation of liability |
