Formation of a Business, Legal Services in Northern Virginia

Characteristic

C Corporations

S Corporations

Sole Proprietorship

General Partnership

Limited Partnership

LLC

Ownership Rules

Unlimited number of shareholders allowed; no limit on stock classes

Up to 75 shareholders allowed; only one basic class of stock allowed

One owner

Unlimited number of general partners allowed

Unlimited number of general and limited partners allowed

Unlimited number of "members" allowed

Personal Liability of the Owners

Generally no personal liability of the shareholders for the obligations of the corporation

Unlimited personal liability for the obligations of the business

Unlimited personal liability of the general partners for the obligations of the business

Unlimited personal liability of the general partners for the obligations of the business; limited partners generally have no personal liability

Generally no personal liability of the members for obligations of the business

Tax Treatment

Corporation taxed on its earnings at the corporate level and the shareholders may have a further tax on any dividends distributed ("double taxation")

Entity generally not taxed as the profits and losses are passed through to the shareholders ("pass-through" taxation)

Entity not taxed, as the profits and losses are passed through to the sole proprietor

Entity not taxed as the profits and losses are passed through to the general partners

Entity not taxed, as the profits and losses are passed through to the general and limited partners

Entity not taxed (unless chosen to be taxed), as the profits and losses are passed through to the members

Key Documents Needed For Formation

Management of the Business

Board of Directors has overall management responsibility and officers have day-to-day responsibility

Sole proprietor manages the business

The general partners have equal management rights, unless they agree otherwise

The general partner manages the business, subject to any limitations of the Limited Partnership Agreement

The Operating Agreement sets forth how the business is to be managed � a Manager can be designated to manage the business

Capital Contributions

Shareholders typically purchase stock in the corporation, either common or preferred

Shareholders typically purchase stock in the corporation, but only one class of stock is allowed

Sole proprietor contributes whatever capital needed

The general partners typically contribute money or services to the partnership, and receive an interest in profits and losses

The general and limited partners typically contribute money or services to the limited partnership, and receive an interest in profits and losses

The members typically contribute money or services to the LLC, and receive an interest in profits and