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Advantages and Disadvantages of the Types of Business Entities

Type of business structure Main advantages Main Disadvantages Unique Property
  • Easy to create and maintain
  • Company and owner are legally the same entity
  • No commissions associated with the creation of the economic unit
  • The owner can deduct a net business loss from personal income taxes.
  • The owner is personally liable for any debts, lawsuits, or other business liabilities.
  • The owner must pay personal income taxes for all net profits of the business
General Partener
  • Easy to create and maintain
  • No commissions associated with the creation of the economic unit
  • Owners can report their share of net business losses in personal income taxes
  • All owners are jointly and personally liable for debts, lawsuits, or other business liabilities.
  • Owners must pay income tax on all net business profits
Simple limited partnership
  • Easy to attract investors, as they are only responsible for the full amount of their investment in the company
  • Limited partners have limited liability for debts, lawsuits, or other business responsibilities.
  • General partners have more freedom to focus their attention on the business
  • General partners can raise cash without diminishing their control of the business
  • Limited partners can leave the business without dissolving the limited partnership
  • General partners are jointly and personally liable for debts, judgments or other business obligations
  • May be more expensive to create than a general partnership
  • Especially suitable for companies such as real estate investment groups or in the film industry
Regular corporation
  • Business owners have limited liability for business debts, judgments, and other liabilities
  • Some benefits can be deducted as business expenses
  • With good accounting, owners and businesses may be able to pay lower taxes by dividing business profits among owners.
  • More expensive to establish than a sole proprietorship
  • Complicated documentation that must be filed with the secretary of state
  • The company must pay its own taxes as a separate tax entity
S Corporation
  • Business owners have limited liability for debts, judgments, and other business liabilities
  • The owners share in the net profits of the company and declare their share of personal income taxes.
  • Owners share in the net loss from the business and can offset other income by reporting this loss in personal income taxes.
  • More expensive to establish than a sole proprietorship
  • The paperwork is more complicated than the paperwork required for an LLC, but similar advantages
  • The ownership interest of the various owners determines their respective income from the profits of the company
  • Some benefits are only granted to owners who own more than 2% of the shares of the company
Professional corporation
  • Landlords are not personally liable for the malpractice of other landlords
  • More expensive to establish than a sole proprietorship
  • Paperwork and filings can be onerous for homeowners
  • Each owner must be in the same profession as the other owners
Non-profit corporation
  • The corporation does not pay income taxes on money it receives for charitable purposes
  • Donors who donate for charity can deduct their donations from income taxes
  • Some benefits can be deducted as business expenses
  • The total tax benefits and advantages can only be used by companies that have been incorporated for charitable, educational, scientific, religious or literary purposes.
  • If the property is transferred to a nonprofit corporation, the property must remain with the corporation. Even if the corporation terminates, the property must go to another non-profit organization
Limited Liability Company (LLC)
  • Business owners have limited liability for business debts, judgments, and other liabilities, even if owners exercise significant control of the business
  • Company profits and losses can be assigned to owners on different lines than property interests (for example, a 10% owner can be assigned 30% of company profits)
  • Owners can choose how the LLC will be taxed, either as a partnership or as a partnership.
  • More expensive to establish than a sole proprietorship
Professional Limited Liability Company
  • Allows state licensed professionals to enjoy the same benefits as an LLC
  • The same disadvantages as an LLC
  • All members must belong to the same profession
Limited Liability Company
  • Business entities associated with things like law, medicine, and accounting typically use this
  • Partners are not responsible for the malpractice of other partners
  • The partners bear their share of the gain or loss on their personal income taxes.
  • Partners remain personally liable for obligations to business creditors, lessors, and lenders
  • Not all states allow limited liability companies
  • Often limited to a few professions