| Selecting a Structure for Your New Business |
| Business Structure | Pros | Cons |
| Sole Proprietorship | Easy and inexpensive to set up and operate with profit or loss on owner's personal tax return | Owner has unlimited liability and is responsible for all debts |
| General Partnership | Similar to sole proprietorship in that it is easy, inexpensive to set up and operate with profits or losses reflected on each partner's tax return | Partners have unlimited liability and are responsible for all debts. |
| Limited Partnership | There are general partners and limited partners. The limited partners have limited personal liability for debts as long as they do not involve themselves in management. The general partners can raise money for company without involved limited partners in management. | The general partners are personally liable for company's debts. Typically, this structure is used for real estate deals. These structures can be expensive to set up. |
| C Corporation | Owners have limited liability; benefits are deductible; corporate profits can be split among corporation and owners, paying lower overall taxes. | C Corporations are relatively expensive to set up and require considerably more paperwork than some other business structures. There is also another tax entity, which means additional expense |
| S Corporation | Great structure for a small business with limited liability for the owner regarding debts but profit or loss is passed through on owner's tax return, thus another tax entity is not required as with a C Corporation. | The S Corporation can be expensive to set up and there is more paperwork than for the sole proprietorship or the partnership. |
| Professional Corporation | All owners must belong to the same profession and have no liability for malpractice of other owners. | Can be expensive to set up with considerable paperwork. |
| Nonprofit Corporation | The corporation does not pay income tax and contributions to charitable corporations are tax deductible. Fringe benefits are deductible. | Only groups set up for charitable, scientific, educational, literary or religious purposes can take advantage of full tax advantages. The property transferred to the nonprofit corporation must stay there and if the corporation ends, the property must be transferred to another nonprofit. |
| Limited Liability Company (LLC) | There is limited liability for owners, even if they participate in management. There is flexibility in allocating profit and loss among owners. | These are more expensive to set up than either the sole proprietorship or partnership. State laws for creating such corporations may not reflect the latest tax regulations from the IRS. |
| Professional Limited Liability Company | Same advantages as a limited liability company. Members must belong to the same profession. | These structures are more expensive to set up than the sole proprietorship or partnership. |
| Limited Liability Partnership | Owners are not personally liable for the malpractice of other partners. Good structure for doctors, lawyers and accountants. Owners can report profit and loss on their personal tax returns. | This type of structure is not available in all states. Further, although owners are not responsible for malpractice of other owners, they are personally liable for many types of obligations of the business. |
