Last Updated: June 2018 Ownership/Control Capital Liability Taxation Pros Cons

Owned and controlled by Full liability. Pass through.  Easy to form  Weakest liability Individual/Self Self, friends, Owner is 100% responsible Owner reports  Formation inexpensive protection Sole Proprietorship family for all business debts. business income on  Minimal administrative  Limited capital options Existence ends with death of Business and personal individual tax return. requirements  Existence ends with owner, or until dissolution Loans assets are at risk.  Pass through taxation owner’s life No annual franchise tax

Divided among partners or as All partners are jointly and  Flexible governance:  Liability protections are written in Partnership severally liable for all Pass through. determined by partnership still weak (partners are General Agreement (PA) partnership debts Partnership’s income agreement jointly and severally Partnership Partners passes through to each  Minimal administrative liable) Existence ends with death of partner’s personal requirements  Existence not Partnerships partner or per terms of PA Loans income (schedule K) independent of partners (difficulties with NYS Annual Tax buying/selling interests in Form IT-204 partnership) Same as above, except: General partner personally Limited General partners have more liable. Limited partners  Same as above, plus:  More expensive to form Partnership control then limited partners liable only up to capital they  Offers limited liability for (publication requirement) invested in partnership. limited partners.

Owners are the member(s) Capital Limited Liability Taxation depends on  Strong liability protection  More expensive to form contributions of what LLC elects to  Governance is flexible; (publication fees) Controlled by members or members, friends, Liability limited to amount do: double taxation or determined by OA  More administrative Limited Liability Company managers as set in Operating family of capital contributed by pass through.  Ownership options: you requirements: less than (LLC) Agreement (OA) member(s) unless acting as can have multiple classes Corp but good record Loans guarantor of LLC’s debt. NYS Annual Tax of interests and LLC is keeping is a must Exists indefinitely unless Form IT-204 transferable  Not investor friendly. otherwise specified in OA  Flexible taxation options  Time consuming and No owners; organization Donations from Limited liability for Exempt from federal  Access to capital only expensive to create and “belongs” to the public-at-large. the public and Directors, Officers and taxes. available to non-profits manage corporations; tax Board Members Exception: taxes  Incentivizes public  A lot of corporate Non-Profit Corporation Controlled by Directors/Officers exempt if 501(c)3 collected on unrelated donations by offering tax formalities voted by the Board Members to Caveat: corporate veil business activities exemptions  Difficult to dissolve manage the non-profit. Grants, doctrine  Favorable tax treatment  Director/Officer foundations Exempt from annual  Non-pecuniary, mission- compensation must be Perpetual existence (private + public) NYS franchise tax driven business for the “reasonable” (must file Form CT- public good.  Cannot engage in 247) substantial lobbying or electioneering

Last Updated: June 2018 Ownership/Control Capital Liability Taxation Pros Cons Double Taxation: 1. Corp pays tax on  Strong liability protection  Strict corporate business income at  Investor friendly – can formalities Owners are share holders Sale of shares corporate tax rate offer different stock  More administrative 2. Profits paid to options; easy to transfer requirements C-Corp Control is with elected board of Loans shareholders are interests  Compliance burdens with Directors/Officers; shareholders taxed at personal SEC vote on major corporate income tax rate decisions and corporate bylaws NYS Annual franchise may influence management tax based on corp.

profits

Perpetual existence Same as above Same as C-Corp above, and  Same as C-Corp, plus

plus select grants Limited Liability: B-Corp can choose to  Public benefit goals.  Compliance burden with B-Corp and foundations Liability limited to capital be taxed like C-Corp Mission driven + profit third party auditor for

that distribute to contributed unless acting as or like S-Corp driven. public benefit Corporations benefit corps guarantor of corporate debt.  Flexible taxation options requirements. (Corp.) Same as above, and Same as C-Corp. Caveat: corporate veil Pass through. Same as C-Corp above, and Same as C-Corp above, plus: Only ≤ 100 shareholders doctrine Corporate income not  Less investor friendly allowed; only one class of stock. taxed. Income of S-  Pass through taxation then C-Corp: one class of S-Corp Corp distributed to stock, ≤100 shareholders Shareholders must be US shareholders and is  Extra steps to make S- citizens or legal permanent taxed at personal Corp tax election; file residents. Cannot be a Corp, income tax rates. additional forms with LLC, etc. IRS and NYS Tax Dept. Same as C-Corp  Limited liability Close Corp with only a few Close Corp can  Flexible taxation options  Not investor friendly – Corp shareholders. They must own all No public trading choose to be taxed  Easier to manage, fewer cannot sell shares to the stock and management of shares. like C-Corp or like S- administrative and people outside positions in the Corp. Corp. compliance requirements management of corp. Capital from Owners are coop members. Must members; Sale of Limited Liability: Taxation depends on  Coop run for “mutual  More complex and less have at least 5 members. stock (to members Liability is limited to capital type of coop (member, help” and benefit of all flexible to manage only). contributed. worker, agricultural members; profit not  Slower decision making Cooperatives Coop can be stocked or non- etc.) primary goal. due to democratic nature stocked. Transaction fees Caveat: Corporate veil  For Ag. Coops: better of coop (per unit sold); doctrine May receive pass bargaining power as  Difficult to transfer Elected Board of hrly withholdings through treatment collective; resource interests Directors/Officers run the (worker coops) sharing, reduced costs,  Not investor friendly. cooperative but regular members Special deductions better products etc. have voting power to control Loans; Gov’t and and tax computations  Funding opportunities direction of the coop. One private grants and (Subchapter T) unique to coops. member, one vote rule. foundations that  Special IRS tax fund coops. exemptions