Comparison of Entities
One method to assist you in determining which business entity is best for your business is to compare the various types of entities. Because a sole proprietorship and a general partnership do not give any limited liability protection to the owner(s), I have not included those entities in this comparison. I have limited this comparison to just two types of entities, the LLC and the corporation; however, I have included corporations taxed under Subchapter S and those taxed under Subchapter C.
Factors to Consider |
LLC |
Sub. S Corp. |
Sub. C Corp. |
Restrictions on owners |
None |
Many |
None |
Limited Liabilities for owners possible |
Yes |
Yes |
Yes |
Restrictions on allocations of income and deductions to owners |
Minimal |
Must be allocated on a per share basis |
N/A |
Is ownership easily taken over by the owner's creditors? |
Yes for At-Will LLC No for Term LLC |
Yes |
Yes |
Are income taxes paid by the owners or the entity |
Owners |
Owners |
Corporation |
Are different classes of ownership allowed |
Yes |
No |
Yes |
How are employment taxes paid |
Self-employment tax |
FICA |
FICA |
Must an attorney be used to create the entity |
No |
Yes |
Yes |
Normal type of agreements |
Operating Agreement |
Bylaws and Buy-Sell Agreement |
Bylaws and Buy-Sell Agreement |