Quick Guide to Business Entities

Entity	Advantages
Proprietorship	1)Easy to form & simple to operate
Schedule C or	2)Easy to sell assets.
Schedule F	3)Fewer administrative burdens
	4)All taxation to owner
	Disadvantages
	1)Limited source of capital
	2)No limited liability for owner
	3)No continuity past proprietor
	4)All net income is subject to self-employment (SE) tax
Partnership	Advantages
Form 1065	1)More sources of capital & more management resources
	2)Less adminisrative burdens than corporations
	3)Pass-through taxation; special allocations allowed
	4)Limited partners have limited liability and no SE tax
	Disadvantages
	1)Transfer of interests is more difficult than stock or limited liability units
	2)Each general partner is personally liable
	3)General partners' net income is subject to SE tax
	4)Complexity of partnership tax rules; restrictions on choice of tax year
C Corporation	Advantages
Form 1120	1)Can raise capital with stock sales
	2)Owners have limited liability
	3)Corporations have perpetual life
	4)Ease of transferability of stock
	5)More mangement resources
	Disadvantages
	1)Earnings subject to double taxation
	2)Administrative burdens
	3)Somewhat difficult to form and to dissolve
	4)Borrowing often requires shareholder guarantees
	5)Potential double taxation on dissolution
S Corporation	Advantages
Form 1120s	1)Pass-through status aoids double taxation
	2)Owners have limited liability
	3)Individual tax rates may be lower than the applicable corporate rates.
	4)Distributions from the S corporation are exempt from payroll taxes.
	Disadvantages
	1)Number of sharholders limited to 100; no corporate, partnership or nonresident alien shareholders
	2)Only one class of stock permitted
	3)Lack of tax-free fringe benefits to greater-than-2% shareholder-employees
	4)Individual tax rates on the pass-through income may be higher than applicable corporate rates; restrictions on choice of tax year
	5)Shareholders must directly invest to have basis to claim losses; guarantee of entity debt is insufficient
Limited Liability	Advantages
Company	1)All members have limited liability
Schedule C or	2)No limit on number or types of members
Schedule F or	3)Pass-through taxation under partnership rules
Form 1065	4)Member distributions can include special allocations
	5)Members may participate in management
	6)Different classes of ownership may be permitted
	Disadvantages
	1)May have a limited life.  Tax year choice restricted if taxed as partnership
	2)Transferability of interests may be limited
	3)LLC laws vary from state to state
	4)LLC liability protection is relatively untested in the courts
	5)Members who have management authority, who have debt responsibility or who materially participate may be exposed to SE tax
This information is from Quickfinders Handbook Thomson Rueters