Characteristics | Sole Proprietor | General Partnership | LLC | Corporation |
| Formation | One individual conducting business. No state permission required | Agreement of parties involved. No state permission required | File Articles of Organization with AZ Corporation Commission | File Articles of Incorporation with AZ Corporation Commission |
Duration | Dissolved by decision of owner, death or bankruptcy of owner | Dissolved by agreement of partners, death of partner or bankruptcy | Can expire on a designated date or be perpetual | Perpetual |
Liability | Proprietor Owner has unlimited liability | Partners have unlimited liability | Members not liable for the debts or obligations of the LLC | Shareholders not personally liable for the debts or obligations of the Corporation |
Simplicity
of Operation | Very Simple | Relatively few legal requirements | Some formal requirements but less formal than corporations | Formality of Board of Directors, officers, annual meetings and annual reporting |
Management | Solely operated by proprietor | Typically each partner has an equal voice unless otherwise arranged | Managed by Member(s) or Manager(s). The Operating Agreement is the governing document. | Managed by the board of directors who are elected by the shareholders. The bylaws are the governing document. |
Taxation | Owner is subject to self-employment tax on all earnings and can deduct losses against other sources of income | Each partner is subject to self-employment tax on all earnings and can deduct losses against other sources of income | If properly structured there is no tax at the entity level. Income/loss is passed through to members of the LLC | C-Corp: Corporation is a taxable entity. S- Corp: No tax at entity level. Income / loss is passed through to the shareholders |
Pass-Through Income/Loss | Yes | Yes | Yes | C-Corp: No, corporate losses can’t be deducted by shareholder S-Corp: Yes |
Double
Taxation
| No | No | No | C-Corp: Yes S-Corp: No |
Cost of
Creation | None | None | Filing fee with the state | Filing fee with the state |
Raising
Capital | Contributions from proprietor | Contributions from partners or an addition of more partners | Possible to sell interests. Subject to operating agreement restrictions | Sell shares of stock to raise capital |
Transferability
of Interest | No | No | Yes, subject to operating agreement | Shares of stock in a corporation are transferable subject to bylaws |
