| TYPE |
MAIN ADVANTAGES |
MAIN DRAWBACKS |
| Cooperative Model |
Earnings from business with members are taxed once, either as income
of the corporation when earned or as income of the members when allocated
to them. |
|
| Sole Proprietorship |
Simple and inexpensive to create and operate. Owner reports profit or
loss on his or her personal tax return. |
Owner personally liable for business debts. Limited to the money
the owners have and can borrow. |
| General Partnership |
Simple and inexpensive to create and operate. Owners report their share
of profit or loss on their personal tax returns. |
Owners (partners) are liable for everything each owner does and what
the company does. Limited to the money the partners have and can
borrow. |
| Limited Partnership |
Limited partners have limited personal liability for business debts as long as they don’t participate in management. General partners can raise cash without involving outside investors in management of business. |
General partners personally liable for business debts. More expensive to create than general partnership. Suitable mainly for companies that invest in real estate. |
| Regular Corporation |
Owners have limited personal liability for business debts. Fringe benefits can be deducted as business expenses. Owners can split corporate profit among owners and corporation, paying lower overall tax rate. |
Most expensive to start. Paperwork can seem burdensome to some owners. Separate taxable entity. Taxed twice, once at the corporate level and then at the individual level. |
| S Corporation |
Owners have limited personal liability for business debts. Owners report their share of the profits or loss on their personal tax return. Owners can use corporate loss to off set income from other sources. |
More expensive to create than partnership or sole proprietorship. More paperwork than for a limited liability company which offers similar advantages. Income must be allocated to owners according to their ownership interests. Fringe benefits limited for owners who own more than 2% of shares. |
| Professional Corporation |
Owners have no personal liability for malpractice of other owners. |
More expensive to create than partnership or sole proprietorship. Paperwork can seem burdensome to some owners. All owners must belong to the same profession. |
| Nonprofit Corporation |
Corporation doesn’t pay income taxes. Contributions to charitable corporation are tax-deductible. Fringe benefits can be deducted as business expenses. |
Full tax advantage available only to groups organized for charitable, scientific, educational, literary or religious purposes. Property transferred to corporation stays there; if corporation ends, property must go to another nonprofit. |
| Limited Liability |
Owners have limited personal liability for business debts even if they participate in management. Profit and lost can be allocated differently than ownership interests. IRS rules now allow LLCs to choose between being taxed as partnership or corporation. |
Owners have limited personal liability for business debts even if they participate in management. Profit and lost can be allocated differently than ownership interests. IRS rules now allow LLCs to choose between being taxed as partnership or corporation. |
| Professional Limited Liability Company |
Same advantages as a regular limited liability company. Gives state licensed professionals a way to enjoy those advantages. |
Same advantages as a regular limited liability company. Gives state licensed professionals a way to enjoy those advantages. |
| Limited Liability Partnership |
Mostly of interest to partners in old line professions such as law, medicine and accounting. Owners aren’t personally liable for the malpractice of other partners. Owners report their share of profit or loss on their personal tax returns. |
Mostly of interest to partners in old line professions such as law, medicine and accounting. Owners aren’t personally liable for the malpractice
of other partners. Owners report their share of profit or loss on their personal tax returns. |
