Entity Selection Table
| Issues | Sole Proprietorship | Partnership | Limited Liability Company | S-Corporation | Corporation |
| Creation | Nothing Required | Agreement of parties involved or be governed by Uniform Partnership Act | File Articles of Organization | File Articles of Incorporation with the State | File Articles of Incorporation with the State |
| Duration | Life of Proprietor | Dissolves at death of any one partner or bankruptcy | Typically limited to a fixed amount of time | Perpetual | Perpetual |
|
Liability |
Unlimited liability | Unlimited liability | Owners are generally not personally liable for the debts of the LLC | Owners are ordinarily not personally liable for the debts of the corporation | Owners are ordinarily not personally liable for the debts of the corporation |
|
Formalities
to |
None | Very few legal requirements | Should have regular board meetings to discuss non-regular business activity | Should have regular board meetings to discuss non-regular business activity | Should have regular board meetings to discuss non-regular business activity |
| Control | Sole control | Equal unless indicated in Partnership Agreement to the contrary | Operating Agreement that outlines management | Controlled by the board of directors who are elected by the shareholders | Controlled by the board of directors who are elected by the shareholders |
| Taxation | Increased statistical risk of audit, all business activity flows to sole proprietor | Each partner pays tax on their share of the income and can deduct losses against other sources of income | Pass through taxation to owners. | Pass through taxation to owners. | Corporation pays tax and owners pay taxes on their dividends – double taxation. |
| Passive Income (no wage withholdings of up to 18% | No passive income. All income is subject to wage withholdings on first approximately $85k of income at about 18% and thereafter at 3%. | No passive income. All income is subject to wage withholdings on first approximately $85k of income at about 18% and thereafter at 3%. | No passive income. All income is subject to wage withholdings on first approximately $85k of income at about 18% and thereafter at 3%. | Yes. You are allowed to distinguish between wager earning income and passive income | Yes. You are allowed to distinguish between wager earning income and passive income. |
| Double Taxation | No | No | No | No | Yes |
| Cost of Creation | None | None | Filing fee and between $300-$750 | Filing fee and between $300-$750. | Filing fee and between $300-$750. |
Chart courtesy of:
Thomas M Fafinski
BenePartum Law Group, P.A.
860 Blue Gentian Rd, Suite 295
Eagan, MN 55121
(651) 994-4300
Email: tfafinski@benepartum.com
Website: http://www.benepartum.com
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