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Sole-Proprietorship
- Income is taxed on your personal return at your personal tax rate and subject to self-employment tax (an additional 15%).
- Not required to file annual reports.
- Maintained and operated by one person.
- Does not pay payroll to owner.
Partnership
- Income is taxed on each partner’s personal return at their personal tax rate. (Income is split by a pre-determined percentage per person.). Some or all of the income may be subject to self-employment tax (additional 15%).
- Legal liability is limited for an RLLP (a Registered Limited Liability Partnership).
- Not required to file annual reports (unless RLLP).
- Managed by partners.
- Should have an operating agreement (consult attorney).
- Partners are not paid payroll.
C-Corporation
- Only the corporation is responsible for the company’s debts (unless an owner signs a personal guarantee).
- Unlimited number of shareholders (but can be a single person).
- Taxed at corporate level and the shareholders are taxed on any distributions at the personal level as well.
- Owners cannot take payroll, only stock distributions, dividends, etc.
S-Corporation
- Only the corporation is responsible for the company’s debts (unless an owner signs a personal guarantee).
- Maximum of 100 stockholders.
- Managed by directors that are appointed by stockholders (can be a single person).
- Income is taxed on shareholders’ personal returns (NOT subject to self-employment tax).
- Should have by-laws (consult attorney).
- Owner is paid payroll and receives a W2. Can also take a distribution.
LLC
- Can elect to be treated as any of the above for tax purposes.
- Will be automatically treated as a sole-proprietorship if owned by a single person and no other option is elected.
- Will be automatically treated as a partnership if owned by more than one person and no other option is elected.
- Not required to file annual reports.
- Should be run by members (can be a single member).
- Should have an operating agreement (consult attorney).
