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Sole Proprietorship |
Partnership |
C Corporation |
S Corporation |
LLC (multi-member or single member) |
LLLP |
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Method of |
Only Business |
Partnership agreement |
Must file |
Generally same |
Articles of Org- |
General partners rule. |
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Formation |
licenses |
Written agreement |
articles of |
as C corp. |
anization filed in |
Limited partners are |
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of entity |
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required for |
incorporation |
Must file w/ IRS |
state recognizing |
investors with no votes |
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limited |
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an election |
LLC's |
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partnership |
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for "S" corporation |
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status. |
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Liability |
Unlimited |
General partners are |
Shareholders' liability |
Same as C |
Same as C |
General partners are |
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personal liability |
jointly and severally |
limited to amount of |
corporation. |
corporation. |
liable , but generally |
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for debts of the |
liable. Limited partners' |
capital contributions |
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But questionable |
limited partners are not |
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business |
liability is generally |
(in most instances) |
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if single member |
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limited to capital |
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contributions. |
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Management |
Proprietor is |
General partners can |
Management and |
Same as C |
May be vested in |
Same as partnership |
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responsible for |
engage in active |
control is centralized |
corporation. |
members or elected |
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all management |
management; limited |
in board of directors; |
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non-member |
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decisions |
partners lose limited |
shareholders can |
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managers. |
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liability if actively |
actively participate in |
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participating in |
management as |
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management |
officers or directors. |
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Ability to |
Unrestricted: must, |
General partner can |
Generally unrestricted |
Same as C corp. |
Same as |
Same as |
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transfer |
however, transfer |
only transfer his |
(unless an agreement |
but can only |
partnership. |
partnership. |
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interests in |
assets of business |
interest with approval |
to the contrary.) |
transfer interests |
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entity |
and not an equity |
of all partners (unless |
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to eligible share- |
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interest. |
agreement provides |
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holder if S election |
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otherwise): limited |
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to be retained. |
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partners may typically |
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transfer interests only |
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with consent of |
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general partners. |
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Limitations on |
One owner |
At least two. |
None |
Limited to 75 |
Governed by |
At least two. |
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ownership |
H & W constitute |
At least one must be a |
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shareholders |
States' rules. |
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one owner. |
general partner. |
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(H & W counted as |
Colorado allows |
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May want both |
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one). Only indiv- |
single member LLC's. |
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for Social security |
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iduals, estates, trusts, |
Income or loss reported on sch C |
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purposes. |
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are eligible. Can only |
if single member LLC. |
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have one class of |
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stock. |
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Federal |
Income or loss flows |
Income or loss flows |
Taxed at corporate |
Similar to partnership. |
Assuming election made, |
Same as partnership |
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Income |
to individual's |
to partners' |
rates. Some tax |
Income flows through |
taxed as partnership. |
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Taxation |
tax return via |
tax returns via K1's |
maneuvering needed |
to shareholders |
Income flows through |
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schedule C |
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to avoid "double |
via K1's to be taxed |
to members |
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taxation", once of the |
on their individual |
via K1's to be taxed |
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corporation, once of |
returns. |
on their individual |
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shareholders via |
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returns. |
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dividend income. |
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Colorado |
Same as Federal |
Same as Federal |
Similar to |
Same as Federal |
Same as Federal |
Same as Federal |
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Income |
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Federal |
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Taxation |
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Allocations |
100% to the active |
Profits and losses |
Not applicable - |
Must be allocated |
Same as |
Same as |
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of income |
owner. Can be |
can be allocated |
not a flow through |
on a "per share, |
Partnership |
Partnership |
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and losses. |
split with spouse |
among partners with |
entity |
per day" basis. |
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for SE tax |
some flexibility. Partnership |
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Agreement can be modified |
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to allow changes. |
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Distributions |
Owners take draws |
Partners take |
Dividends |
Dividend distns. |
Same as |
Same as |
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no tax effect |
draws, with great |
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Articles of |
Partnership |
Partnership |
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flexibility. Draws reduce |
Incorporation spell |
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cost basis |
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out distribution rules |
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Method of |
Draws - complete |
Draws in relationship |
Salaries |
Salaries |
Same as partnership |
Same as partnership |
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taking "salaries" |
freedom |
to partnership |
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ratios |
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Self |
Pay SE tax |
"Active" partners |
Corporation pays |
Same as C corp., |
SE tax on |
Same as |
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employment |
at 15.3% of |
pay SE tax at 15.3% |
its share of FICA |
and no SE tax on |
Guaranteed |
Partnership |
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tax on |
business profits |
of allocated income. |
at 7.65% on salaries |
allocated income |
salaries |
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owners |
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including officers' |
but IRS can try to |
SE on other income or on |
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salaries. |
characterize distns. |
inactive members |
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as disguised |
is a gray area |
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salaries. |
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FICA, FUTA |
No |
Possibly |
Yes |
Yes |
Yes |
Yes |
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SUI |
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on owner's |
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kids under 18 |
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Medical and |
Not deductible |
Deduct x% (60% for |
Generally |
Same as partnership |
Same as partnership |
Same as partnership |
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other fringes |
but could employ |
2001) of medical |
fully deductible |
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for owners |
spouse and deduct. |
insurance premiums as |
and tax-free to |
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adj. to income on |
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all medical |
individual returns. |
owners |
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Tax on |
Individual |
Similar to SP. |
Corporation pays |
Similar to |
Similar to |
Similar to |
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sale of the |
recognizes |
Gains and losses |
tax based on gain |
partnership. |
partnership. |
partnership. |
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business |
combination of |
flow through to |
on sale. |
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capital and |
partners. Losses |
Shareholders pay |
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ordinary gain |
limited to basis. |
tax on liquidating |
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dividends received. |
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I.e. there is double |
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taxation. |
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DISCLAIMER - THE ABOVE COMPARISON SHOULD NOT BE USED AS A BASIS FOR MAKING A DECISION OR RELIED UPON FORLIABILITY PROTECTION OR TAX ADVICE. YOU ARE URGED TO SEEK COUNSEL FROM A QUALIFIED PROFESSIONAL |
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