A sole proprietorship is a business in which one persons owns all the assets, owes all the liabilities, and operates in his personal capacity. A sole proprietorship is the easiest type of entity to form and operate; however, the owner is personally liable for all of the obligations of the business.
A partnership is an association of two or more persons to operate a business for profit. No filing is necessary to form a general partnership. All the income and losses flow through the entity and are taxed to or deducted by the partners. Each partner is jointly and severally liable for the obligations of the partnership and each partner has the power to act on behalf of the partnership.
A limited partnership is a partnership that have general partners and limited partners. Only the general partner is personally liable for the partnership’s obligations and, in exchange, the limited partners have no right to act on behalf of the partnership. A limited partnership must comply with statutory requirements.
A corporation is a legal entity created by statute which has shareholders (owners), directors, and officers. Shareholders are not personally liable for the corporation’s obligations (except in rare instances). A “C” corporation is subject to taxation at the corporate level and then dividends are taxed at the shareholder level. An “S” corporation may only have one class of stock and has a single level of taxation (income and losses are passed through to the shareholders). Corporations must comply with many statutory requirements (annual meetings, record keeping).
Limited Liability Company.
A limited liability company is an unincorporated association created by statute in which the owners are called members. The company may be member-managed (the owners control the day-to-day activities) or manager-managed (the owners appoint a manager to handle the day-to-day activities). Members are not personally liability for the company’s obligations (except in rare instances). A limited liability company may be taxed as a disregarded entity, partnership, or “S” corporation.
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