Legal Business Entity Structures

Choosing a Business Entity










Can Owners Deduct losses from their personal tax payments Can you decide  income or expenses to allocate among owners regardless of the capital each  invests? ADVANTAGES DISADVANTAGES


Sole Proprietorship


Controlled by Owner

Owner is personally liable for all business debts

All business income is considered personal income to the owner and is taxed at personal income tax rates

yes N/A Easy set up and understand - best way to start if you don't have a lot of personal wealth Personal liability,  self-employment tax

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General Partnership

Two or more individuals or other entities (sometimes with partnership agreement)

Partners control with partnership agreement

All partners are liable for all partnership debts

Partners’ share  income or loss  included on the income tax return of the partner and taxed at personal  or corporate rates

yes yes can allocate income and expenses as agreed among partners Liable for actions of other partners.  Self-employment tax.

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Limited Partnership


Two or more owners / general partners and limited partners

General partner(s) may end partnership at their discretion, limited partners do no have this option. 

Limited partners are only liable to extent of capital invested

Same as general partnership

yes yes   Liable for actions of other partners.  Self-employment tax.


“C” Corporation

Shareholders (Unlimited number)

Oownership through stock, and business is managed through a Board of Directors; Other legal regulations also apply

Shareholder liability is limited to amount of capital contributed unless also acting as guarantor of  debt

Corporation pay tax on business income at corporate tax rate; profits distributed to shareholders and are taxed at personal income tax rate

no no 100% deductible health insurance, fully deductible medical reimbursement and fringe benefits plans,   up to $50,000 profits are taxed at 15% if left in the corporation rather than at your  higher, personal income tax rate. cannot use corp. expenses to offset your personal income. if corp. has a lot of profits, doublet taxation occurs

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 “S” Corporation




Same as “C” Corporation

Same as “C” Corporation

Corporation not taxed; income is taxable to the shareholders at their personal income tax rate

yes no No Social Security or Medicare taxes no health insurance deduction and limited deductions for Home-Based office

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Limited Liability Company

One or more members

Controlled by members or managers, as set out in operating agreement

Generally, same as “C” Corporation above

Taxed as partnership, corporation or may be disregarded depending on election made.

yes yes    

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Limited Liability Partnership

Two or more owners; limited partners

Controlled by partners in accordance with partnership agreement

Limited and General partners only liable of capital invested

Same as general partnership

yes yes Limited Liability as in a  corporation with pass through income benefits of a partnership.  Self employment tax, unsettled, and insufficient law issues as to the legal and tax treatment of this entity.