| Characteristics |
Sole Proprietorship
|
C
Corporation
|
S
Corporation
|
Limited Liability Company
|
|
Formation
|
No state filing required.
|
State filing required.
|
State filing required.
|
State filing required.
|
|
Duration of Existence
|
Dissolved if entity ceases doing business or upon death of the sole proprietor.
|
Perpetual
|
Perpetual
|
Dependent on the requirements imposed by the state of formation when forming an LLC.
|
|
Liability
|
Sole proprietor has unlimited liability.
|
Shareholders are typically not responsible for the debts of the corporation.
|
Shareholders are typically not responsible for the debts of the corporation.
|
Members are not typically liable for the debts of the LLC.
|
|
Operational Requirements
|
Relatively few legal requirements.
|
Board of directors, annual meetings and annual reporting required.
|
Board of directors, annual meetings and annual reporting required.
|
Some formal requirements but less formal than corporations.
|
|
Management
|
Sole proprietor has full control of management and operations.
|
Managed by the directors, who are elected by the shareholders.
|
Managed by the directors, who are elected by the shareholders.
|
Members have an operating agreement that outlines management.
|
|
Taxation
|
Not a taxable entity. Sole proprietor pays all taxes.
|
Taxed at the entity level. If dividends are distributed to shareholders, dividends are also taxed at the individual level.
|
No tax at the entity level. Income/loss is passed through to the shareholders.
|
If properly structured there is no tax at the entity level. Income/loss is passed through to members.
|
| Pass Through Income/Loss |
Yes
|
No
|
Yes
|
Yes
|
|
Double Taxation
|
No
|
Yes, if income is distributed to shareholders in the form of dividends.
|
No
|
No
|
|
Cost of Creation
|
None
|
State filing fee required.
|
State filing fee required.
|
State filing fee required.
|
|
Raising Capital
|
Often difficult unless individual contributes funds.
|
Shares of stock are sold to raise capital.
|
Shares of stock are sold to raise capital.
|
Possible to sell interests, though subject to operating agreement restrictions.
|
| Transferability of Interest |
No
|
Shares of stock are easily transferred.
|
Yes, but must observe IRS regulations on who can own stock.
|
Possibly, depending on restrictions outlined in the operating agreement.
|
