Business Entity Types

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Small Business Entity Types

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	SOLE PROPRIETORSHIP	GENERAL PARTNERSHIPS	LIMITED LIABILITY PARTNERSHIP
Formation	no statutory requirements trade name application EIN (if you have employees)	no direct statutory rqmts trade name application EIN (if you have employees) partnership agreement	file registration with Secretary of State for a fee EIN partnership agreement
Management and Control	proprietor has sole management authority	shared by partners	shared by partners
Liability of Owner(s)	unlimited	joint and several insurance contract	limited on tort claims; joint and several for contract claims
Ability to Raise Capital	limited to wealth and borrowing capacity of proprietor	limited by collective wealth and contributions of partners and overall value of business	limited by collective wealth and contributions of partners and overall value of business
Federal Taxation of Entity	taxed at individual level	pass through	pass through
Transferability of Ownership Interest	no equity interests to transfer or sell	transfer causes technical dissolution	transfer causes technical dissolution
Fringe Benefits	must be included in income; up to 40% deductible for health insurance with % increasing	must be included in partner's taxable income; up to 40% deductible; percent of deductibility increasing	must be included in partner's taxable income; up to 40% deductible; percent of deductibility increasing
Deductibility of Losses	deductibility aginst income, subject to at-risk rules, PAL's basis	deductibility against income, subject to at-risk rules; PAL's and basis; basis inceases for loans to entity	deductibility against income, subject to at-risk rules; PAL's and basis; basis inceases for loans to entity
Availability of Special Allocations	N/A	available	available
Basis Adjustments at Death	step up	inside and outside basis increases - See § IRC 754	inside and outside basis increases - See § IRC 754
Eligibility to be an Equity Holder	N/A	no limitations	no limitations

	LIMITED PARTNERSHIPS	LIMITED LIABILITY COMPANIES	CORPORATIONS
Formation	file registration with Secretary of State for a fee EIN partnership agreement there is an application fee for certificate	file registration with Secretary of State for a fee securities form EIN operating and management agreement annual report fee	file registration with Secretary of State for a fee securities form EIN S election (for S Corporations) bylaws/shareholders agreements annual report fee
Management and Control	general partners	may be delegated to manager or retained by members	board of directors or shareholders
Liability of Owner(s)	general partners joint and several limited partners limited to investment	limited to investment	limited to investment
Ability to Raise Capital	limited by collective wealth and contributions of partners and overall value of business securities laws apply to sales of securities	limited by wealth of participating members and overall value of business securities laws apply to sales of securities	limited by wealth of participating shareholders and overall value of business securities laws apply to sales of securities
Federal Taxation of Entity	pass through	pass through	C Corporation - double taxation S Corporation - pass through
Transferability of Ownership Interest	limited partners can transfer, subject to securities laws issues and partnership restrictions general partner transfer causes technical dissolution unless limited partners agree to continuation	freely transferable interests, subject to restrictions in agreement	shares freely transferable subject to shareholder agreement and securities law concerns
Fringe Benefits	must be included in partner's taxable income; up to 40% deductible; percent of deductibility increasing	must be included in partner's taxable income; up to 40% deductible; percent of deductibility increasing	C Corporation - deductible to corporation; excluded from employee's gross income S Corporation - for 2% or greater shareholder (same as partnership)
Deductibility of Losses	deductibility against income, subject to at-risk rules; PAL's and basis; basis inceases for loans to entity	deductibility against income, subject to at-risk rules; PAL's and basis; basis inceases for loans to entity	C Corporation - no shareholder deductions; loss carries forward S Corporation - deductions available subject to at-risk rules, PAL's and basis. Loans to entity do not affect basis.
Availability of Special Allocations	available	available	not available
Basis Adjustments at Death	inside and outside basis increases - See § IRC 754	inside and outside basis increases - See § IRC 754	basis in shares step up but not inside basis of asset
Eligibility to be an Equity Holder	no limitations	no limitations	C Corporation - no limitations S Corporation - significant limitations; i.e., maximum of 75 shareholders

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Note: This information has been compiled by the Knowledge Institute for Small Business Development (KISBD) for educational purposes only in order to convey a general overview of the options and related services available to small businesses in the subject areas introduced. Content is provided on an "as is" basis and is not intended to be an exhaustive representation, nor does it provide advice or create a customer relationship between KISBD and its sponsors, buzgate.org, its affiliates and any other organization named herein, and any reader.

BUZGate.org is an award-winning entrepreneurial education and resource community serving small and medium-sized businesses. Content promotes awareness and access to free government and nonprofit assistance programs and select business-to-business products and services tailored to driving venture startup, growth and profitability.

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