Ways to Organize Your Business

Related Ads

Need Professional Help? Talk to a Lawyer

Enter Your Zip Code to Connect with a Lawyer Serving Your Area

searchbox small

Thoroughly confused? The chart below lists the pros and cons of corporations, LLCs, partnerships, sole proprietorships, and more.

Type of EntityMain AdvantagesMain Drawbacks
Sole ProprietorshipSimple and inexpensive to create and operate

Owner reports profit or loss on his or her personal tax return
Owner personally liable for business debts
General PartnershipSimple and inexpensive to create and operate

Owners (partners) report their share of profit or loss on their personal tax returns
Owners (partners) personally liable for business debts
Limited Liability CompanyOwners have limited personal liability for business debts even if they participate in management

Profit and loss can be allocated differently than ownership interests

IRS rules now allow LLCs to choose between being taxed as partnership or corporation
More expensive to create than partnership or sole proprietorship

State laws for creating LLCs may not reflect latest federal tax changes
Regular (or C)CorporationOwners have limited personal liability for business debts

Fringe benefits can be deducted as business expense

Owners can split corporate profit among owners and corporation, paying lower overall tax rate
More expensive to create than partnership or sole proprietorship

Paperwork can seem burdensome to some owners

Separate taxable entity
S CorporationOwners have limited personal liability for business debts

Owners report their share of corporate profit or loss on their personal tax returns

Owners can use corporate loss to offset income from other sources
More expensive to create than partnership or sole proprietorship

More paperwork than for a limited liability company, which offers similar advantages

Income must be allocated to owners according to their ownership interests

Fringe benefits limited for owners who own more than 2% of shares
Limited PartnershipLimited partners have limited personal liability for business debts as long as they don't participate in management

General partners can raise cash without involving outside investors in management of business
General partners personally liable for business debts

More expensive to create than general partnership

Suitable mainly for companies that invest in real estate

For more information on business forms and business formations, check out the free Nolo resources on Ownership Structures.

Get Informed

Empower yourself with our plain-English information

Do It Yourself

Handle routine tasks with our products

Find a Lawyer

Connect with a local lawyer who meets your needs

The fastest, easiest way to find, choose, and connect to business lawyers

LA-NOLO1:DRU.1.6.3.6.20141124.29342