Choice of Entity Chart

 
C Corporation
S Corporation
General Partnership
Limited Partnership
Limited Liability Company
Separate Taxable Entity Yes No No No Usually a partnership which is not a separate entity
Taxation of Income Taxed to corporation at sect. 11 rates. Shareholders taxed upon distribution of dividends. Directly to shareholders at their rates. If there is built-in gain the S corporation is taxed. Directly to Partners at their rates. Directly to Partners at their rates. Directly to Members at their rates.
Contribution of property in exchange for ownership interests No gain or loss recognized if the transferors are in control of the company after the exchange. Possible exception if contributed property is subject to debt or entity is an investment company. No gain or loss recognized if the transferors are in control of the company after the exchange. Possible exception if contributed property is subject to debt or entity is an investment company. No gain or loss recognized unless the contributed property is subject to debt or entity is an investment company. No gain or loss recognized unless the contributed property is subject to debt or entity is an investment company. No gain or loss recognized unless the contributed property is subject to debt or entity is an investment company.
Contribution of services in exchange for ownership interest Taxable Taxable Taxable. Possible exception if ownership interest is only a profits interest. Taxable. Possible exception if ownership interest is only a profits interest. Taxable. Possible exception if ownership interest is only 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 Owner 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 Not applicable Character is passed through from entity. Character is passed through from entity. Character is passed through from entity. Character is passed through from entity.
treatment of liabilities with regard to basis Not applicable No increase in basis for share of entity liabilities Increase in basis for debts to shareholders. increase in basis for share of entity liabilities; decrease in share of entity liabilities treated as a cash distribution. increase in basis for share of entity liabilities; decrease in share of entity liabilities treated as a cash distribution. increase in basis for share of entity liabilities; decrease in share of entity liabilities treated as a cash distribution.
Deduction of losses on owner's tax returns No. Deductible against corporate income. NOLs 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.
Maximum number of owners No limit Number of shareholders may not exceed 100 Limited by publicly traded partnership rules Limited by publicly traded partnership rules Limited by publicly traded partnership rules
Trust may be an owner Yes Limited types of trusts jnay be shareholders Yes Yes Yes
Corporation may be an owner Yes No. Only individuals, estates and certain trusts may be shareholders. Yes Yes Yes
Limited liability company may be an owner Yes No. Only individuals, estates and certain trusts may be shareholders. Yes Yes Yes
Partnership may be an owner Yes No. Only individuals, estates and certain trusts may be shareholders. Yes Yes Yes
Nonresident may be an owner Yes No Yes Yes Yes
Basic ownership unit Share Share Partnership interest implicitly bifurcated into governance and financial rights Partnership interest implicitly bifurcated into governance and financial rights LLC interest implicitly bifurcated into governance and financial rights
Limited Liability Yes Yes No Limited partners have limited liability if they do not participate in management of the partnership. General partners do not have limited liability. Yes
Member participation in management Management of corporation vested in the board of directors. Shareholders elect directors and vote on organic changes. Management of corporation vested in the board of directors. Shareholders elect directors and vote on organic changes. All partners have equal rights to manage and participate in business except as restricted by partnership agreement. Limited partners may not participate in management without losing limited liability. General partner manages partnership. Subject to LLC agreement.
Transferabiiity of interest Freely transferable, absent restrictions in stockholder agreement Freely transferable, absent restrictions in stockholder agreement. However, a transfer to an ineligible party may result in termination of S corporation status. General partner ship interest generally (in practice) not transferable. General partner ship interest generally (in practice) not transferable. Limited partnership interest may be transferable. Subject to LLC agreement.
Liquidation Corporation and shareholders generally recognize gain or loss Corporation recognizes gain or loss which is taxed to shareholders Generally, no gain or loss recognized. Gain or loss may be recognized for certain non-pro rata distributions. Generally, no gain or loss recognized. Gain or loss may be recognized for certain non-pro rata distributions. Nontaxable to the extent of a member's basis
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 in computing taxable income but amounts used to purchase benefits for more than 2% shareholders flow through as income to them. Partners generally not eligible for tax-free fringes Partners generally not eligible for tax-free fringes Members generally not eligible for tax-free fringes
Employment taxes FSCA tax payable by the corporation and employees FSCA tax payable by the corporation and employees Self employment tax applies to compensation of partners Self employment tax applies to compensation of partners Self employment tax applies to compensation of members
IRS election required None Yes None None None
Federal tax return Form 1120 Form 1120-S Form 1065 Form 1065 Form 1065