Before starting the incorporation process, you will need to choose the proper business structure. LegalFilings Comparison Chart helps you quickly compare entity characteristics including the advantages and disadvantages of forming a C Corporation, Subchapter S Corporation or LLC.


Entity Characteristics Sole Proprietorship Partnership LLC S-Corp C-Corp
Requirements for Creation No state permission requirements Parties must agree to form partnership. No state permission requirements Must file with state for creation Must file with state for creation Must file with state for creation
Life of Entity Life of sole proprietor Death of partner causes dissolution Generally a fixed period (usually 30 years) Unlimited Unlimited
Liability to Parties Involved Unlimited liability for sole proprietor Unlimited liabilitiy for partners LLC members not personally liable for company debts Shareholders not personally liable for corporate debts Shareholders not personally liable for corporate debts
Formal Requirements for Operation Few legal requirements Few legal requirements Some requirements, but less than corporations Board of directors, officers, annual meetings, and annual reports Shareholders not personally liable for corporate debts.directors, officers, annual meetings, and annual reports. Board of directors, officers, annual meetings, and annual reports
Entity Management Characteristics Sole proprietor is the manager and operator Partners generally have equal voice Members agree to the form of management by either members or hired management Managed by the officers and the board of directors, the directors being elected by the shareholders, and the officers being appointed by the directors Managed by the officers and the board of directors, the directors being elected by the shareholders, and the officers being appointed by the directors
Taxation Issues There is no taxable entity. The sole proprietor pays taxes in the form of income taxes Partners pay taxes on their share of the income and deduct losses against other sources of income Can elect taxation method. For example, can be taxed as a corporation or can elect to have no company tax liability Corporation has no tax liability. Taxes are paid on an individual income tax level by the shareholders when profits are passed Corporation is taxed as well as are the individual shareholders when corporate profits are passed in the form of dividends (this is known as double-taxation).
Taxation Method Income tax on proprietor Income tax on partner's share of partnership income Can elect taxation method. Generally no tax at the company level Generally no tax at the company level Profits subject to double-taxation
Cost of Entity Formation None None State filing fees State filing fees State filing fees
Interest Transfer Issues Individual may sell Addition of partners or additional sale of partnership interests to existing partners Sale of member interests may take place subject to company policy Shares of stock may be sold to raise capital, subject to federal and state securities laws Shares of stock may be sold to raise capital, subject to federal and state securities laws.