|
Choice of Entity |
C Corporation |
S Corporation |
General Partnership |
Limited Partnership |
Limited Liability Company |
|
Separate Taxable Entity |
Yes |
No |
No |
No |
No. Usually taxed as a partnership unless the members elect to be taxed as a corporation. |
|
Taxation of Income |
Corporation is subject to tax.
Shareholders are also subject to
tax on dividends received.
|
Shareholders are subject to tax
for their pro rata share of the
S Corporation's income. The S
corporation is taxed on built-in
gain. |
Partners are subject to tax for
their pro rata share of the
partnership's income. |
Partners are subject to tax for
their pro rata share of the
partnership's income. |
Members are subject to tax for
their pro rata share of the
company's income, unless the
company has elected to be taxed
as a corporation. |
|
Contribution of property in
exchange for ownership interests |
No gain or loss is recognized if
the transferors are in control
of the corporation after the
exchange. |
No gain or loss is recognized if
the transferors are in control
of the corporation after the
exchange. |
No gain or loss is recognized
unless the contributed property
is subject to debt or entity is
an investment company. |
No gain or loss is recognized
unless the contributed property
is subject to debt or entity is
an investment company. |
No gain or loss is recognized
unless the contributed property
is subject to debt or entity is
an investment company. |
|
Contribution of services for
ownership interest |
Taxable |
Taxable |
Taxable, unless the ownership
interest is limited to a profits
interest. |
Taxable, unless the ownership
interest is limited to a profits
interest. |
Taxable, unless the ownership
interest is limited to a profits
interest. |
|
Special allocation of income or
losses to partners or
shareholders |
No |
No |
Yes, if has substantial economic
effect. |
Yes, if has substantial economic
effect. |
Yes, if has substantial economic
effect. |
|
Distribution to Owners |
Any gain in distributed property
taxable to the entity. |
Distribution of appreciated
property results in gain at
shareholder level but
shareholder gets basis increase. |
No gain or loss recognized on
distribution of property other
than money until partner
disposes of the property. |
No gain or loss recognized on
distribution of property other
than money until partner
disposes of the property. |
No gain or loss recognized on
distribution of property other
than money until partner
disposes of the property. |
|
Character of income and loss |
Corporations |
Character is passed through from
entity. |
Character is passed through from
entity. |
Character is passed through from
entity. |
Character is passed through from
entity. |
|
Inclusion of liabilities in
basis |
Not applicable |
No increase in basis for share
of entity liabilities Increase
in basis for debts to
shareholders. |
Partner is entitled to an
increase in basis for share of
entity liabilities |
Partner is entitled to an
increase in basis for share of
entity liabilities |
Member is entitled to an
increase in basis for share of
entity liabilities |
|
Deduction of losses on owner's
tax returns |
No. Deductible against corporate
income. Net s generally can be
carried back 2 years and carried
forward 20 years. |
Yes. Deductible by shareholders
to the extent of basis in stock
and loans from shareholder to
corporation. Deductibility may
be limited by passive loss and
at-risk rules. |
Yes. Deductible by partner to
the extent of basis.
Deductibility may be limited by
passive loss and at-risk rules. |
Yes. Deductible by partners to
the extent of basis in
partnership. Deductibility may
be limited by passive loss and
at-risk rules. |
Yes. Deductible by members to
the extent of basis in
partnership. Deductibility may
be limited by passive loss and
at-risk rules. |
|
Ownership restrictions |
None |
Number of shareholders may not
exceed 100; Only individuals,
estates and certain trusts may
be shareholders. Nonresident may not be an owner. |
None. (However a publicly traded
partnership shall be treated as
a C corporation). |
None. (However a publicly traded
partnership shall be treated as
a C corporation). |
None. (However a publicly traded
partnership shall be treated as
a C corporation). |
|
Limited Liability |
Yes |
Yes |
No |
Limited partners have limited
liability provided they do not
participate in management.
General partners do not have
limited liability. |
Yes |
|
Management |
The management of a corporation
is vested in the board of
directors. The shareholders
elect directors and vote on
major transactions. |
The management of a corporation
is vested in the board of
directors. The shareholders
elect directors and vote on
major transactions. |
Partners have equal rights to
manage and participate in
management except as restricted
by partnership agreement. |
The general partner manages
partnership. Limited partners
may not participate in
management without losing
limited liability. |
Member participation in
management determined by LLC
Agreement. |
|
Transferability of interests |
Freely transferable, absent
restrictions in shareholder
agreement (which should be noted
on Stock Certificate). |
Freely transferable, absent
restrictions in shareholder
agreement (which should be noted
on Stock Certificate). A
transfer to an ineligible party
may result in termination of S
corporation status. |
General partnership interests
may be difficult to transfer as
a practical matter. |
General partnership interests
may be difficult to transfer as
a practical matter. Limited
partnership interests are
generally transferable, except
when restricted by partnership
or subscription agreement. |
Transferability of interests
determined by the LLC agreement. |
|
Fringe benefits |
Shareholder employees may
receive tax qualified fringe
benefits without restriction. |
Owner of more than 2% of S
corporation shares generally
cannot receive tax-free
benefits. Expenses for benefits
are deductible but amounts used
to purchase benefits for more
than 2% shareholders pass
through as income to the
shareholders. |
Partners are generally not
eligible for tax-free fringe
benefits |
Partners are generally not
eligible for tax-free fringe
benefits |
Members are generally not
eligible for tax-free fringe
benefits |
|
Employment Taxes |
FICA
, FUTA and
Medicare taxes
are payable by the
corporation and employees |
FICA
, FUTA and
Medicare taxes
are payable by the
corporation and employees.
Distributions paid to the
shareholder are not
subject to FICA and FUTA |
Self employment tax applies to
all
compensation of partners |
Self employment tax applies to
all
payments to partners |
Self employment tax applies to
all
payments to members |
|
Federal Tax
Return |
Form 1120 |
Form 1120-S |
Form 1065 |
Form 1065 |
Form 1065 |
