Use this chart to quickly compare entity characteristics before you decide on an entity to protect your assets
| Sole Proprietor | C Corporation | S Corporation | LLC | LP | |
| Lawsuit protection for owners when business is sued? | NO | YES | YES | YES | YES |
| Asset protection for business assets when owner is sued? | NO | NO | NO | YES | YES |
| Additional business tax deductions available? | NO | YES | YES | YES | YES |
| Who is taxed on business profits? | Owner | Corporation | Shareholder | Your choice – Owner or Company | Partner via K1 |
| When to use? | Not recommended | Own a business, to take advantage of lower corporate taxes compared to individual income taxes, publicly traded company, to deduct retirement and medical expenses. | Own a business where the owner will disburse most of the corporate profits to himself/herself. | To own real estate. To hold cash for asset protection. To own the stock in one’s corporations. | To own familial wealth. Parents retain control and gift interests to descendants. To hold cash for asset protection. Use this entity for generational wealth or legacy ranch property. |
| Benefits | Few – high liability and fewer tax deductions than alternatives listed here. | Only 15% corporate tax on the first $50,000 of income. | Save 15.3% on taxes. Pay self a small but reasonable salary and pay the rest as a “distribution to shareholders” to save the 12.4% Social Security and 2.9% Medicare for a total savings of 15.3% on this portion of income. | When owner (member) is sued there are provisions in the law to protect assets held inside of the LLC from being seized, but the income tax liability is still the responsibility of the creditor who holds the charging order. | When owner (partner) is sued a charging order protects assets held inside of the LP from being seized. |
| Taxation | As a sole proprietorship – all income flows through to owner. | Corporation pays its own taxes after deductions. (All “for profit” corporations are taxed as C corporations by default.) | Shareholders pay the taxes after deductions. (Must file an election to attain S corporation status). Shareholders can only be US citizens or resident aliens. | Your choice. Can be taxed as a sole proprietorship, partnership, C corporation or S corporation. Default – is sole proprietorship or partnership File a tax election for C corporation IRS 2553 to be taxed as an S corporation | Taxed as a partnership. |
| Ownership | Sole proprietor | Shareholder | Shareholder | Member | Partner |
| Leadership | Sole proprietor | Officer/Director (can generally be same person) | Officer/Director (can generally be same person) | Manager/Member (can generally be same person) | General Partner controls; limited partners may own but have no control. |
| Guideline Documents | None | Bylaws *Company Agreement | Bylaws *Company Agreement | Company Agreement | Partnership Agreement |
| Double taxation required? | NO | NO – only if dividends are paid. Thus, pay salaries and bonuses rather than dividends. | NO | NO | NO |
* The letters “C” and “S” represent chapters in the IRS tax code. C corporations and S corporations are not types of corporations but types of corporate taxation.
For assistance call your attorney at Thrash, Carroll & Sanchez Law Group at 512-263-5400 or email for an appointment for a complimentary initial consultation to discuss these powers of attorney at info@tcslawgroup.com