Sole Partnership C Corporation S Corporation

Characteristics Descriptions Descriptions Descriptions

Number of owners One person owns the business No limitations Not available for professional service Limited to 75 – restriction
Ultra Vires
If a corporation was formed to accomplish the single
purpose of operating a restaurant, any action to achieve
Formation of Partnership some other purpose
Participation in management No restrictions, manage's all of its affairs No restriction No restriction
Generally freely transferable, except for limitations
Transferability of interest Free to transfer his interest Generally freely transferable as to number & type of shareholders
Available on all states Yes Yes Yes, but state taxation varies
Legal title to property Proprietor's name Corporate name Corporate name
Entity Separate from its Owners No Yes Yes
Method of accounting Cash method permitted except for inventory Cash method may be permitted except for inventory Cash method permitted except for inventory
Limited liability of owners None, you can lose your personal assets All shareholders All shareholders
Life of entity Limited Existence may be perpetual Existence may be perpetual
Formal acts required No Yes Yes
Existence of Uniform Act No Yes
Governing documents None Articles & bylaws Articles & bylaws plus "S" election

1. Rules for running the corporation

2. Rules may not conflict with the articles
3. Amendment usually by bored of directors or
shareholders
Information must include in the certificate / # Bylaws are not part of the articles of incorporation &
Agreement / Bylaws are not required to be filed with the state

1. Name & address of the corporation's registered

2. Name of the corporation
3. Name & address of each of the incorporators
4. Provision for the issuance voting stock
5. The number of shares authorized to be issued. (limiting
Contents of Articles the number of shares that may be issue)
Ease of formation Simple – advantage Simple Simple
Cost of formation None Minimal Minimal
Tax year Calendar year Any Calendar year unless $444 election
Individual shareholder tax rates; highest corporate
Applicable tax rate Individual income tax rates Rate scale from 15% to 35% rates on built-in gains or excess passive income
Shareholder, except for built-in gains or passive
Identity of the taxpayer Individual proprietor Corporation income
Double taxation No, P & L flow thru the business 2 sole proprietor Yes Generally no
In year in which S corporation's year ends whether
Timing of income recogn by owners Based on owner's tax year When distributed or not distributed
Deduction by shareholders limited to basis in stock
Deductibility of losses Limited to amount at risk Deducted at corporate level plus loans to company
Treatment of capital losses Net $3,000 yrly loss allowed -offset capital gains Must be used to offset capital gains Passed through to shareholders
Files Form 1120S and distributes K–1s to
IRS filing requirement Proprietor files Schedule C to form 1040 Files Form 1120 shareholders
Only one class of stock allowed, but differences in
Multiple classes of ownership No No restrictions voting rights permitted – restriction
Basically limited to individual citizen & resident
Type of owner permitted No restriction No limitation aliens; some corporate & trust ownership permitted
Income Accum.within the entity No restriction Reasonable needs of the business No restriction
Proxy
+- Written authorization to vote another person's shares --
Valid for 11 months
Profit allocation - generally are revocable
Treasury stock
Treasury stock may be resold without regard to par value.
Decision required consent of all partners treasury stock can be resold at a price less than par value.
- Making a "self-tender" (an offer to acquire stock from
its own stockholders and thus retain control in order to
Partner’s power to bind the partnership prevent a takeover);

Promoters responsibility
- Promoters enter contracts with parties who are interested
in becoming shareholders "stock subscriptions"
- Promoters are personally liable on the contracts they
Dissociated partner's liability to other parties make before the corporation is formed
- Suing the person or company attempting the takeover for
misrepresentation or omission and obtain an injunction
Incoming partner's liability to other parties against the takeover
Filing of articles
If a corporation is faced with the prospect of being taken
over and the board of directors wants to resist the takeover
Implied ( actual) authority attempt, it may do so in a number of ways describe it?

Example about fundamental corporate change

- Dissolution - Amending articles
- Mergers, consolidation, share exchange
When partner is dissociated from the - Sales of all or substantially all of the corporation's assets
partnership outside the regular course
A majority shareholder may owe a fiduciary duty to follow
Fiduciary duty shareholder

Page 1 of 3
 Sole Partnership C Corporation S Corporation
Characteristics Descriptions Descriptions Descriptions

What are the general procedure regarding decision that

might fundamentally change the nature of corporation?
Board must approve a resolution, but there is no
requirement of unanimity
Notice must given to all shareholder & summary of the
merger plan
A majority approval of all outstanding shares

Page 2 of 3
 General Partnership Limited Partnership Limited Liability Partnership Limited Liability Company
Characteristics Descriptions Descriptions Descriptions Descriptions
Two or more; no upper limit
- One or more general partners No upper limit; some state permit single-member
Number of owners Two or more owners of a partnership - One or more limited partners Minimum of two; no upper limit LLC's (One or more persons)

An agreement (intent – sharing profit) between at least tow

Formation of Partnership
Participation in management
Transferability of interest
Admission of new General Partner
or more to carry on as co-owners a business for profit ( A
partnership agreement that cannot be completed within 1
year from the date on which it is entered into must be in
writing)
Absent an agreement to the contrary, all partners have equal All members may be participate in managing the
rights to manage the partnership business. Generally restricted to general partners only No restrictions company
Transfer generally required consent of other
Generally required consent of all other partners Transfer generally required consent of all other partners Trnsfr generally required consent of all other partners partners
Requires approval of all of the existing general partners

Requires the approval of not only all the general

Admission of new Limited Partner partners, but also the majority of the limited partners
Available on all states Yes Yes Yes Yes
Generally in the partnership name (A partner can use
property she owns in the partnership without it automatically
Legal title to property becoming partnership property) Partnership name Partnership name LLC or member name
Entity Separate from its Owners Yes Yes Yes

1. Not assignable or mortgageable by partner individually

2. Not subject to attachment by individual partner's
creditors or for Alimony
3. Rights vest in surviving partners upon death (Heirs get the
Rights in Partnership Property interest)
Generally follows rules for limited partnership
Method of accounting Cash method permitted except for inventory Cash method permitted except for inventory Generally follows rules for limited partnerships unless taxed as a corporation
- General partners personal liability for all partnership
Each partner is jointly & severally liable for partnership debts
obligation (any partner may be held liable for the entire - Limited partners have limited liability to his 1. Partner's are still liable for their own negligence
amount of an obligation even if the other partners are not investment unless they significantly participate in the 2. Negligence of subordinates under their control All members unless otherwise provided for by
Limited liability of owners named as defendants) business 3. Breach of contract damages statutes
1. Serving as general partner
A limited partner can lose his limited 2. Allowing name to be used in the partnership name
liability by doing any one of the following 3. Participating in control
Limited – Death, bankruptcy, incapacity, withdrawing Limited – Death, bankruptcy, incapacity, withdrawing Limited – Death, bankruptcy, incapacity,
Life of entity Limited of partner of partner withdrawing of partner
Yes; generally certificate must be filed by secretary of
Formal acts required No state Yes; generally must be filed by secretary of state Yes; generally must be filed by secretary of state
Existence of Uniform Act Yes; RUPA Yes; RULPA
No requirement for a general partnership to file with the
Governing documents state Partnership agreement Partnership agreement Yes; generally must be filed by secretary of state

- Names of all general partners - Management arrangement - Voting right

- Names of limited partners not required - Member meetings - Profit sharing
Information must include in the certificate / - Must amend certificate of partnership to show any additions - Voting right - Dissolution
Agreement / Bylaws or deletions of general partners - May be oral - Not legally required
1. Statement that the entity is an LLC
2. The name of the LLC
3. The street address of the LLC's registered office & name of
its registered agent
4.The name of the persons who will be managing the
Contents of Articles company
Ease of formation Simple to complex Simple to complex More complex Simple to complex
Cost of formation Moderate to expensive Moderate to expensive Moderate to expensive Moderate to expensive
Follows partnership or corporate rules, depending on Follows partnership or corporate rules, depending
Tax year The same tax year as a majority of its partners how it is taxed The same tax year as a majority of its partners on how it is taxed
Individual, fiduciary, or corporate tax rate depending on the Individual, fiduciary, or corporate tax rate depending on Individual, fiduciary, or corporate tax rate depending Follows partnership or corporate rules, depending
Applicable tax rate type of the partner the type of the partner on the type of the partner on how it is taxed
Follows partnership or corporate rules, depending
on how it is taxed:
- Members may be tax as corporation or partner
Identity of the taxpayer Partners Partners Partners - Single-member may be tax as sole partnership
Follows partnership or corporate rules, depending
Double taxation No No No on how it is taxed
In year in which partnership's year ends, whether or not In year in which partnership's year ends, whether or not In year in which partnership's year ends, whether or Follows partnership or corporate rules, depending
Timing of income recogn by owners distributed distributed not distributed on how it is taxed
Deduction by partners limited to basis in partnership Deduction by partners limited to basis in partnership Follows partnership or corporate rules, depending
Deductibility of losses Deduction by partners limited to basis in partnership interest interest interest on how it is taxed
Follows partnership or corporate rules, depending
Treatment of capital losses Passed through to partners Passed through to partners Passed through to partners on how it is taxed
Follows partnership or corporate rules, depending
IRS filing requirement Files Form 1065 & distributes K-1s shareholders Files Form 1065 & distributes K-1s shareholders Files Form 1065 & distributes K-1s shareholders on how it is taxed
Multiple classes of ownership No restrictions No restrictions No restrictions No restrictions
No limitation, except that for professional
partnerships each partner may have to be certified or
Type of owner permitted None No limitation licensed in the profession No limitation
Follows partnership or corporate rules, depending on how it is
Income Accum.within the entity No restriction No restriction No restriction taxed

1. Per Agreement
2. Equally between partner, unless there an a agreement for
Profit allocation distribution loss In proportion to the value of each partner's contributions In the basis of members' contributions
1. Per Agreement
Loss allocation 2. In the same manner for losses In proportion to the value of each partner's contributions In the basis of members' contributions

1. Admitting new partners Termination of a limited partnership

Decision required consent of all partners
Partner’s power to bind the partnership
2. Confessing a judgment 1. Written consent of all general partners
3. fundamental changes in the p/ship 2. Withdrawal or death of a general partner
4. Change partnership agreement 3. Judicial decree
5. Dissolution of the p/ship not required approval by all 4. The occurrence of the time or event stated in the
partners partnership agreement
When the third party knows that the partner with whom he deals lacks
actual authority, there can be no apparent authority. With such
knowledge, the third party can no longer reasonably believe that the
partner has authority to represent the partnership

purposes for treats partnerships distinct as - Property may be held in the name of the partnership
entities from their owners - Suits can be maintained in the name of the partnership

A retiring partner is liable to creditors for existing debts of

the partnership, but not for those incurred after retirement.
Therefore, when partner leaves the partnership, she is still
individually liable on all past contracts and obligations, Properties for liquidation
unless existing creditors agree to release her and look to the 1. Creditors (including partners)
new incoming partner, (a novation). So actual authority 2. Partners for unpaid distribution
terminated, but apparent authority continues for 2 years 3. Partners for capital
Dissociated partner's liability to other unless notice was given. A statement of dissociation must be 4. Partners for remaining assets (undistributed profit) in
parties filed with the state. proportions for sharing distributions

An incoming partner is not personally liable for debts

incurred by the partnership before he became a partner, but
he is personally liable for all debts incurred by the
Incoming partner's liability to other parties partnership after he becomes a partner
Is authority that can be reasonably implied from actual authority and
from the conduct of the principal, example buy and sell goods, receive
Implied ( actual) authority money, and pay debts of the partnership
Is authority that can be created by the title, position of partners, not
Apparent authority derivedof
name from
thethe express power
partnership; suits can be maintained in the name
of the partnership), but not for others (e.g., partners are
Owners are not always distinct from entity personally liable for obligations of the partnership).
- partner notifies the partnership that they want to withdraw
- the partner become a debtor in bankruptcy
- The partner dies - 90 days AFTER a partner has died
When partner is dissociated from the partnership - The partner is expelled from the partnership
Wrongful withdrawal of a partner in conversation of the agreement
When partner is dissolution from the partnership between the partners

Fiduciary duty Each partner owes a fiduciary duty to the general partnership