Business Structures Comparison


SOLE PROPRIETORSHIP

 Advantages
 Minimum legal restrictions
 Ease of formation
 Low start-up costs
 Sole ownership of profits
 Maximum freedom in decision-making
 Disadvantages
 Unlimited liability
 Less available capital
 Relative difficulty in obtaining long-term financing
 No. of Owners Allowed
 Only 1 owner
 NC Filing Requirement
 Trade Name Registration
 DBA - Not required, but recommended
 Formation  Taxable
 Taxation Issues
 Not subject to federal income tax at entity level; tax items reported on
 Schedule C of owner's personal return
 Liquidation  Not applicable

GENERAL PARTNERSHIP
 Advantages
 Ease of formation
 Direct rewards
 Broader management base due to greater number of owners                
 Disadvantages  Unlimited liability of general partners
 Divided authority
 No. of Owners Allowed
 At least 2; no upper limits
 NC Filing Requirement
 Trade Name Registration
 Formation  Non-taxable, unless disguised sale or the partner is
 relieved from debt
 Taxation Issues
 Not subject to federal income tax at entity level; tax items
 passed through to the partners
 Liquidation  Taxable to the extent cash distributions exceed a partner's
 tax basis

LIMITED PARTNERSHIP
 Advantages
 Ease of formation
 Broader management base due to greater number of owners
 Not used very often - LLCs are more popular
 Disadvantages  Unlimited liability of general partners
 Divided authority
 Difficulty disposing of limited partnership interest
 No. of Owners Allowed 
 At least one general partner and one limited partner
 No upper limits
 NC Filing Requirement
 Certificate of limited partnership
 Formation  Non-taxable, unless disguised sale or the member is relieved from      
 debt
 Taxation Issues
 Not subject to federal income tax at entity level; tax items passed
 through to the partners
 Liquidation
 Taxable to the extent cash distributions exceed a partner's tax basis

LIMITED LIABILITY COMPANY

 Advantages
 Ease of formation and management
 Can have a single-member LLC (a disregarded entity)
 Disadvantages  Higher filing and annual fees
 Death, bankruptcy or withdrawal of owner require planning ahead      
 No. of Owners Allowed
 At least one
 No upper limits
 NC Filing Requirement
 Articles of organization
 Formation  Non-taxable, unless disguised sale or the member is relieved from
 debt
 Taxation Issues
 Not subject to federal income tax at entity level; tax items passed
 through to the partners
 Liquidation
 Taxable to the extent cash distributions exceed a member's tax basis

"C" CORPORATION
 Advantages
 Separate legal entity
 Limited Liability
 Relative ease in raising captial
 Transfer of ownership through sale of stock
 Can use different classes of stock
 Disadvantages  Organizational complexity
 Extensive regulation, record-keeping requirements
 No of Owners Allowed
 At least one
 No upper limits
 NC Filing Requirements
 Articles of Incorporation
 Formation  Non-taxable (except to the extent of debt relief) if the transferors met
 the control test of Section 351 of the Internal Revenue Code
 Taxation Issues
 Subject to federal income tax at entity level and upon shareholders
 when receive dividends
 Liquidation  Taxable to corporation and shareholders to extent distribution
 exceeds stock basis

TAX ELECTION "S" CORPORATION

 Advantages
 Limited liability for shareholders
 Possible tax benefits to owners (work with CPA)
 Disadvantages
 Restriction son number and type of shareholders
 Limitations on classes of stock that may be issued
 No of Owners Allowed
 At least one
 Upper limit is 100
 NC Filing Requirements
 Articles of Incorporation
 Formation  Non-taxable (except to the extent of debt relief) if the transferors met
 the control test of Section 351 of the Internal  Revenue Code
 Taxation Issues  Not subject to federal income tax at entity level
 Tax items passed through to shareholders
 Liquidation  Generally non-taxable at corporate level and taxable at shareholder
 level to the extent distribution exceeds stock basis

Updated 8/28/2020 4:02:11 PM | R Hode
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