Characteristics of Different Business Entities

    

Comparison of Types of Practice

Characteristic Limited Liability Company Limited Liability Partnership Subchapter S Professional Corporation General Partnership Sole Proprietorship
Personal Liability of Owners Limited, except for an individual's own professional errors Partner are not liable for acts, errors, omissions, malpractice, malfeasance or negligence of others unless they supervised or were involved.  In most LLP states, partners are liable for contractual obligations Limited, except for an individual's own professional errors Unlimited Unlimited
Federal Income Tax Treatment Single level of taxation, if properly structured Partnership taxation Single level of taxation Single level of taxation Single level of taxation
Permitted Number of Owners No restriction, but need at least 2 for partnership tax treatment Unlimited Limited to 75 Unlimited One
Permitted Types of Owners No restrictions No restrictions Limited to individuals, estates, and certain trusts No restrictions Individual
Permitted Classes of Ownership Interests Multiple classes are permitted Multiple classes are permitted You can have only one class of stock.  The S Corporation is treated as having only class of stock if all outstanding shares of the corporation possess identical rights to distribution and liquidation proceeds.  Differences in voting rights are allowed if the above requirements are met. Multiple classes are permitted

N/A

Duration of Entity May be perpetual Limited May be perpetual Limited Limited
Special Allocation of Tax Items Permitted if partnership tax treatment applies Permitted Not permitted Permitted if partnership tax treatment applies

N/A

Centralized Management Entity can be managed by either managers or members Managed by general partners Managed by board of directors and officers Managed by general partners N/A
Transferability of Interests Usually limited by articles or regulations; may be limited by state law Generally limited by state law and partnership agreement Usually limited by shareholder agreement; must comply with subchapter S tax requirements Generally limited by state law and partnership agreement N/A
Necessary Documentation Articles of Organization; regulations; minutes Usually a partnership agreement and annual registration Articles of incorporation; bylaws; minutes Usually a partnership agreement Minimal
Regulation of Issue and Sale of Interests Federal and state securities law; state LLC laws Interests in LLPs are probably not securities; interests in limited liability limited partnerships probably are securities Federal and state securities law; state corporation laws State partnership laws N/A

SCOTT J. FAYE, CPA PC  One Executive Blvd., Suite 103  Suffern, NY 10901-4157  Telephone: 914-368-1020