Characteristics of Major Forms of Ownership

Below are the comparisons between the common types of business entity.

Common Business Entity Types

Business Entity Characteristics	Sole Proprietorship
Formation	No filing required.
Cost of formation	Low
Personal liability	Owners have unlimited liability.
Continuity of the  business	End on death or upon termination by proprietor.
Tax Treatment	Not a separate taxable entity. Income/loss is passed through to the owners.
Number of Owners	1
Transferability of ownership	Fully transferable through sale or transfer of company assets.
Limited Personal Liability	Unlimited
Formalities and Record-keeping	Relatively few legal requirements.
Management	Sole proprietor has full control. Partnerships have a flexible management and operational structure.
Raising capital	Limited access to capital.
Recommended for:	Owners wanting minimal formalities, maximum flexibility, and not worried about personal liability.

Business Entity Characteristics	Partnership
Formation	No written partnership required (but advisable).
Cost of formation	Moderate
Personal liability	Owners have unlimited liability.
Continuity of the  business	Dissolves upon death or retirement of partner (business may continue).
Tax Treatment	Not a separate taxable entity. Partners pay on their proportional shares at individual rate.
Number of Owners	2 or more
Transferability of ownership	May require consent of all partners.
Limited Personal Liability	Unlimited
Formalities and Record-keeping	Few legal requirements.
Management	Typically each partner has an equal voice unless otherwise agreed.
Raising capital	Contributions from partners or an addition of more partners.
Recommended for:	Owners wanting minimal formalities, maximum flexibility, and not worried about personal liability.

Business Entity Characteristics	Limited Liability Company
Formation	Must meet formal   requirements specified by law.
Cost of formation	High
Personal liability	Shareholders are typically not personally liable for corporate debts.
Continuity of the  business	Shareholders, directors, and officers.
Tax Treatment	"Double Taxation" (Earnings are taxed once at the corporate level and dividends are taxed again at the shareholder level).
Number of Owners	Any number
Transferability of ownership	Usually requires consent of all members.
Limited Personal Liability	Limited
Formalities and Record-keeping	Formal meetings and minutes are not required; however annual audited reports are required.
Management	The corporation is managed by the board of directors who are elected by the shareholders.
Raising capital	Sell shares of stock to raise capital.
Recommended for:	Owners wanting the liability protection of a corporation with less corporate formalities, and the simplicity of pass-through taxation of income.