Small Business: Forms of Business Chart
| Form of business | Legal filings | Taxation | Structure | Advantages | Disadvantages |
|---|---|---|---|---|---|
| Sole proprietorship |
Required licenses and registrations |
Personal rates, filed using Schedule C on Form 1040 |
Business ceases when proprietor leaves the business |
Easy to set up |
Does not protect against personal liability |
| Partnership |
Assumed name filing, required licenses and registrations |
Profit shared by partners at personal tax rates |
Dissolves when a partner leaves |
Fairly easy to set up; partnership agreement recommended |
Does not protect against personal liability Only partial deduction for health expenses |
| C corporation |
Annual reports Board of directors meetings |
Separate tax return, taxed as separate entity Corporate tax rates Dividends taxed to shareholders |
Perpetual existence More than one class of ownership are possible (e.g., common and preferred) |
Can protect against personal liability of individual shareholders regarding claims against the business |
Corporate tax rate is higher than individual Double taxation of dividends Additional administrative costs |
| S corporation |
Similar to C corporation |
Taxed at individual rate, Form 1040, Schedule C, E, and SE Form 1120S, Income Tax Return for S Corporation and Form 1120S K-1 |
Similar to a C corporation except must meet certain requirements to be treated as an S corporation |
Eliminates double taxation of dividends |
Cannot deduct benefits such as health insurance for shareholders owning 2% or more of the company |
| LLCs |
Exempt from corporate filings in most states |
Taxed at individual rate, Form 1040, Schedule C (need approval of IRS) |
Somewhat of a hybrid between an S corporation and a C corporation |
Taxed at personal rate |
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