Most Common Types of Business Entities
The Corporation
LLC: Limited Liability Company
Sole Proprietorship
.
.
Best Used For
Seeking venture capital or other outside investment
Ongoing, profitable business
Management looking for traditional structure
Owners looking for less formal structure
Investing in real estate and passive investments
Corporate subsidiaries
Looking for no long term commitment
Easy to start and stop
Simple taxes
NOT Good For
Those needing or wanting pass-through taxation
Those who don’t like holding meetings and dealing with formality
Those seeking professional investment (venture capital)
Non-US residents doing business in the US, particularly Canadian resident
Those who want limited liability
Are thinking to build up a real business
Want to hire employees or otherwise have liability risks
Advantages
Limited Liability protection for the owners
Ability to raise outside investment
Ability to issue shares, options and bonds
Decades of legal precedents to follow
Well-understood legal structure
Limited Liability protection for the owners
Easy to maintain
Extremely flexible for legal and tax purposes, so can be tailored to the needs of the owners and the particular deal
Flexible allocation of profits/losses among the members.
Fast, easy and cheap to form on your own
Easy to close/end
Disadvantages
Strict formalities to follow
Must file corporate tax return each year
Can be complex to maintain
Annual taxes, fees and reports to file and pay
Can be complex to close down
C Corporations face double taxationSubject to tax on worldwide income
Difficult to use for obtaining outside investment
Setting up properly can be tricky, especially with multiple members
Can be complicated if new members added or existing members leave
Members (owners) are subject to self-employment and unincorporated business taxes
Members living in other states can create tax complications if they are active in company management
Provides NO liability protection to the owner
Extremely difficult to obtain outside funding
Impossible to get new investor(s) without becoming a partnership
Filed with
State govt
State govt
County clerk
Learn more about corporations
Learn more about LLCs
IRS Weblinks
IRS Corporation webpage
IRS LLC webpage
IRS Sole Prop webpage
USA Corporate Services is not a law or accounting firm, so we can’t give any legal or accounting advice. Please be sure to discuss accounting and legal matters with the appropriate professionals before you get started.
The Corporation |
LLC: Limited Liability Company |
Sole Proprietorship | |
|---|---|---|---|
| . |
|
|
.
|
| Best Used For | Seeking venture capital or other outside investment Ongoing, profitable business Management looking for traditional structure |
Owners looking for less formal structure Investing in real estate and passive investments Corporate subsidiaries |
Looking for no long term commitment Easy to start and stop Simple taxes |
| NOT Good For | Those needing or wanting pass-through taxation Those who don’t like holding meetings and dealing with formality |
Those seeking professional investment (venture capital) Non-US residents doing business in the US, particularly Canadian resident |
Those who want limited liability Are thinking to build up a real business Want to hire employees or otherwise have liability risks |
| Advantages | Limited Liability protection for the owners Ability to raise outside investment Ability to issue shares, options and bonds Decades of legal precedents to follow Well-understood legal structure |
Limited Liability protection for the owners Easy to maintain Extremely flexible for legal and tax purposes, so can be tailored to the needs of the owners and the particular deal Flexible allocation of profits/losses among the members. |
Fast, easy and cheap to form on your own Easy to close/end |
| Disadvantages | Strict formalities to follow Must file corporate tax return each year Can be complex to maintain Annual taxes, fees and reports to file and pay Can be complex to close down C Corporations face double taxationSubject to tax on worldwide income |
Difficult to use for obtaining outside investment Setting up properly can be tricky, especially with multiple members Can be complicated if new members added or existing members leave Members (owners) are subject to self-employment and unincorporated business taxes Members living in other states can create tax complications if they are active in company management |
Provides NO liability protection to the owner Extremely difficult to obtain outside funding Impossible to get new investor(s) without becoming a partnership |
| Filed with | State govt | State govt | County clerk |
| Learn more about corporations | Learn more about LLCs | ||
| IRS Weblinks | IRS Corporation webpage | IRS LLC webpage | IRS Sole Prop webpage |
| USA Corporate Services is not a law or accounting firm, so we can’t give any legal or accounting advice. Please be sure to discuss accounting and legal matters with the appropriate professionals before you get started. | |||
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