Forms of Ownership
Type of Entity	Tax	Main Advantages	Main Drawbacks
Sole Proprietorship	Flow-through	v Simple and inexpensive to create and operate	v Owner personally liable for business debts
General Partnership	Flow-through Owners (partners) report their share of profit or loss on their personal tax returns	v Simple and inexpensive to create and operate	v Owners (partners) personally liable for business debts
Limited Partnership	Flow-through	v Limited partners have limited personal liability for business debts as long as they don't participate in management v General partners can raise cash without involving outside investors in management of business	v General partners personally liable for business debts v More expensive to create than general partnership v Suitable mainly for companies that invest in real estate
Regular Corporation	Separate taxable entity	v Owners have limited personal liability for business debts v Fringe benefits can be deducted as business expense	v More expensive to create than partnership or sole proprietorship v Paperwork can seem burdensome to some owners
S Corporation	Flow-through	v Owners have limited personal liability for business debts v Owners report their share of corporate profit or loss on their personal tax returns v Owners can use corporate loss to offset income from other sources	v More expensive to create than partnership or sole proprietorship v More paperwork than for a limited liability company which offers similar advantages v Income must be allocated to owners according to their ownership interests v Fringe benefits limited for owners who own more than 2% of shares
Limited Liability Company	IRS rules now allow LLCs to choose between being taxed as partnership or corporation	v Owners have limited personal liability for business debts even if they participate in management v Profit and loss can be allocated differently than ownership interests	v More expensive to create than partnership or sole proprietorship v State laws for creating LLCs may not reflect latest federal tax changes
Nonprofit Corporation	Not taxed on operations	v Corporation doesn't pay income taxes v Contributions to charitable corporation are tax-deductible v Fringe benefits can be deducted as business expense	v Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes v Property transferred to corporation stays there; if corporation ends, property must go to another nonprofit

From www.nolo.com