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Note: Informational only — not legal or tax advice| Feature | Sole Proprietorship | General Partnership | Limited Liability Company | S Corporation | C Corporation |
|---|---|---|---|---|---|
| Liability Protection | None – owner personally liable | None – partners personally liable | Members’ personal assets generally protected | Shareholders’ personal assets generally protected | Shareholders’ personal assets generally protected |
| Taxation | Pass-through (reported on personal return) | Pass-through (partners report share) | Pass-through by default (can elect corporate taxation) | Pass-through (corporate income “flows through”) | Double taxation (corporate level + dividends) |
| Formation Complexity | Easiest – minimal paperwork | Relatively easy – partnership agreement | Moderate – file articles of organization | More complex – file articles + S-election with IRS | Most complex – file articles; bylaws; board setup |
| Cost to Form & Maintain | Very low | Low | Moderate (state filing + possible annual fees) | Higher (state filing + IRS election + formalities) | Highest (state filing + annual reports + fees) |
| Management & Control | Owner has full control | Shared control per partnership agreement | Flexible (member- or manager-managed) | Rigid (board of directors + officers; limits on owners) | Rigid (board of directors + officers; unlimited owners) |
| Raising Capital | Limited to owner’s resources | Limited to partners’ resources | Easier than sole/partnership; can admit new members | Can issue stock but limited to 100 U.S.-resident shareholders | Easiest – can issue multiple classes of stock; unlimited investors |
| Compliance Requirements | Minimal – local licenses/taxes | Minimal; partnership agreement advisable | Moderate – annual reports, operating agreement recommended | High – annual meetings, minutes, stricter IRS rules | Very high – annual meetings, minutes, extensive filings |
| Ideal For | Solo freelancers, consultants | Two or more small-scale co-founders | Businesses wanting liability protection with flexibility | Small businesses meeting IRS criteria wanting pass-through taxation | High-growth startups seeking outside investment or IPO |
| When to Consider | Testing the waters, ultra-low cost, low risk | Shared workload & simple profit sharing | Balancing liability protection with operational simplicity | Owners want self-employment tax savings; can meet S-corp rules | Planning for rapid scale, VC funding, reinvestment |