Odd Ducks: Limited Partnerships and S Corporations

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14. Business Entities: What Kind of Business Should Your eBay Business Be?

As you consider what type of business entity is right for your business, you may hear or read about two other types: the limited partnership and the S Corporation. Both are older forms of business entities, and neither offer the small business owner the advantages or flexibility of the relatively new LLC form. They are listed here for your information, but they are probably not right for your eBay business.

Limited partnership. A limited partnership has two types of partners: general partners who manage the business and limited partners — typically investors — who contribute capital to the business but are not involved in day-to-day management. With the introduction of the LLC, which offers liability protection to all owners, the limited partnership has lost favor with small business owners.

S Corporation. S corporations still exist, but like limited partnerships, they have for the most part been replaced by LLCs. The S corporation’s shareholders receive the same basic pass-through tax treatment afforded sole proprietorships, partnerships, and LLC owners. S corporation shareholders have limited personal liability for the debts and other liabilities of the corporation. To form an S corporation, you must first form a regular C corporation, and then convert it to an S corporation by filing an S corporation tax election with the IRS. The S Corporation form does not offer the flexibility of the LLC entity. Among other restrictions, an S Corporation can have only a certain number and types of shareholders (no non-U.S. citizens, for example).

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