Let’s compare C corporations, S corporations, limited liability companies (LLCs), limited liability partnerships (LLPs), general partnerships, and sole proprietorships.
CHOOSING A BUSINESS STRUCTURE—HOW DO THEY COMPARE? | |||||
C Corporations | S Corporations | LLCs* and LLPs |
General Partnerships | Sole Proprietorships | |
Liability of owners |
Limited, even if shareholders participate in management | Limited, even if shareholders participate in management |
Limited, even if members participate in management |
Unlimited for general partners; limited for limited partners who do not participate in management | Unlimited |
Number of owners |
No maximum | 100 maximum | No maximum, usually a minimum of two** | No maximum, requires a minimum of two | One |
Profit/loss and distributions | Special allocations permitted for separate classes of stock |
No special allocations permitted |
Special allocations permitted |
Special allocations permitted |
N/A |
Transferability of interests |
No restriction |
No restriction, but must be to eligible shareholder or "S" status terminates | Restricted, typically requires approval of majority of members | Generally restricted unless authorized by agreement | N/A |
Federal income taxes | Taxed at corporate level, a flat 21%, plus tax on dividends to shareholders | No corporate level tax (unless previously a C corporation)*** | None at LLC or LLP level*** | None at partnership level*** | Taxed on individual return*** |
Continuity of life |
Unlimited | Unlimited | Limited | Limited | N/A |
Avoidance of double taxation |
No |
Usually |
Yes |
Yes |
Yes |
Tax forms to file |
Form 1120 | Form 1120S | Form 1065 | Form 1065 | Form 1040 Schedule C |
* LLCs are treated as a partnership for tax purposes.
** Single-member LLCs that do not elect to be corporations will be classified as a "disregarded entity" for tax purposes.
*** Owners of business entities, which are not taxed as "C" corporations, are eligible for a 20% Qualified Business Income (QBI) dedication. The deduction for QBI may be limited and/or subject to phase-out, depending on the taxable income of the individual, as well as such factor as the type of business, amount of wages paid by the business, and amount of capital assets owned by the business. For income above $326,600, the legislation phases in limits on what otherwise would be an effective marginal rate of not more than 29.6%.