Business Entities

Type of EntityProsCons

Sole Proprietorship

  • Simple and inexpensive to create and operate, owner reports profit or loss on his or her personal tax return
  • Owner personally liable for business debts
General Partnership
  • Simple and inexpensive to create and operate, owners (partners) report their share of profit or loss on their personal tax returns
  • Owners (partners) personally liable for business debts

Limited Partnership

  • Limited partners have limited personal liability for business debts as long as they don't participate in management. General partners can raise cash without involving outside investors in management of business
  • General partners personally liable for business debts
  • More expensive to create than general partnership
  • Suitable mainly for companies that invest in real estate

Regular Corporation

  • Owners have limited personal liability for business debts
  • Fringe benefits can be deducted as business expense
  • Owners can split corporate profit among owners and corporation, paying lower overall tax rate
  • More expensive to create than partnership or sole proprietorship
  • Paperwork can seem burdensome to some owners
  • Separate taxable entity
S Corporation
  • Owners have limited personal liability for business debts
  • Owners report their share of corporate profit or loss on their personal tax returns
  • Owners can use corporate loss to offset income from other sources
  • More expensive to create than partnership or sole proprietorship
  • More paperwork than for a limited liability company which offers similar advantages
  • Income must be allocated to owners according to their ownership interests
  • Fringe benefits limited for owners who own more than 2% of shares
Professional Corporation
  • Owners have no personal liability for malpractice of other owners
  • More expensive to create than partnership or sole proprietorship
  • Paperwork can seem burdensome to some owners
  • All owners must belong to the same profession
Non-Profit Corporation
  • Corporation doesn't pay income taxes
  • Contributions to charitable corporation are tax-deductible
  • Fringe benefits can be deducted as business expense
  • Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes
  • Property transferred to corporation stays there; if corporation ends, property must go to another nonprofit

Limited Liability Company

  • Owners have limited personal liability for business debts even if they participate in management
  • Profit and loss can be allocated differently than ownership interests
  • IRS rules now allow LLCs to choose between being taxed as partnership or corporation
  • More expensive to create than partnership or sole proprietorship
  • State laws for creating LLCs may not reflect latest federal tax changes
Professional Limited Liability Company
  • Same advantages as a regular limited liability company
  • Gives state licensed professionals a way to enjoy those advantages
  • Same as for a regular limited liability company
  • Members must all belong to the same profession
Limited Liability Partnership
  • Mostly of interest to partners in old line professions such as law, medicine and accounting
  • Owners (partners) aren't personally liable for the malpractice of other partners
  • Owners report their share of profit or loss on their personal tax returns
  • Unlike a limited liability company or a professional limited liability company, owners (partners) remain personally liable for many types of obligations owed to business creditors, lenders and landlords
  • Not available in all states
  • Often limited to a short list of professions
 
 
 
 
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History

Luis C. Pacheco commenced operations of Accounting Portfolios as a sole proprietor in June 1991 and incorporated in 1995. Over the years, the firm of Accounting Portfolios Inc. has grown steadily and rapidly, and now has a professional staff to service a continuously growing clientele. Today, with active practices in accounting, payroll, tax, financial services, and small business consulting, Accounting Portfolios, Inc. has evolved into a dynamic firm offering customized and effective business solutions.
 
 
Contact us to learn more about our accounting and bookkeeping services for small businesses.
 
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