Characteristic General Partnership Limited Partnership Limited Liability S Corporation C Corporation Company (LLC) A corporation organized 1. Definition A business association A partnership having An unincorporated A corporation organized under state law. Must of two or more persons one or more general entity organized as an under state law. elect subchapter S status to conduct a business partners and one or LLC under state law. by filing election with unless formed under any more limited partners. IRS (Form 2553). other statute. 2. Name No name restrictions. Must contain limited Must contain limited Must contain Must contain partnership without liability company, corporation, corporation, abbreviation. Cannot L.L.C., L.C., LLC, LC, incorporated, company, incorporated, company, include a limited limited company, ltd. limited, corp., co., inc. limited, corp., co., inc. partner’s name unless liability company, ltd. or ltd. Professional or ltd. Professional that partner is also a company, limited co. or corporations must state corporations must state general partner. ltd. co. PC or professional PC or professional corporation. corporation. 3. Governing a. Certificate of co- a. Certificate of limited a. Articles of a. Articles of a. Articles of Instruments partnership filed with partnership filed organization filed incorporation filed incorporation filed county (usually with state. with state. with state. with state. renewable every 5 b. Partnership b. Operating agreement b. Bylaws. b. Bylaws. years). agreement. (not required). c. Various contracts are c. Various contracts are b. Partnership allowed among allowed among share- agreement. No shareholders such as holders such as stock writing necessary to stock purchase purchase agreements form partnership. agreements and and voting trusts. voting trusts. 4. Owners Partners. General partners and Members. Shareholders. Shareholders. limited partners. 5. Management Partners. General partners only. Managers or members Directors and officers. Directors and officers. Authority (must choose one). 6. Permitted All partners. General partners only. Managers or members Shareholders elect Shareholders elect Participation in Participation by limited (if member-managed directors who make directors who make Management partners may subject company). corporate decisions and corporate decisions and them to liability. who elect officers to who elect officers to perform and carry out perform and carry out directives. directives. Characteristic General Partnership Limited Partnership Limited Liability S Corporation C Corporation Company (LLC) 7. Voting Majority vote of general Majority vote of One member, one vote. Shareholders vote based Shareholders vote based partners if in ordinary general partners, Majority vote of on number of shares on number of shares course of business; provided, however, that members, except owned. Majority vote of owned. Majority vote of otherwise unanimous limited partners also unanimous vote required shares of those entitled shares of those entitled vote. vote on admission of by statute for some to vote controls. There to vote controls. There partners, dissolution, major decisions. This may be a nonvoting may be multiple classes continuation after the can be modified by class of shares, but of shares. Voting withdrawal of a general agreement and is often otherwise only one class requirements may be partner, and the modified to provide permitted. modified by agreement. compromise of a voting based on partner’s debt to the ownership interest. The partnership. This can be LLCA now references a modified by agreement. majority in interest of the members. The method of computing voting rights should be addressed in the operating agreement. Characteristic General Partnership Limited Partnership Limited Liability S Corporation C Corporation Company (LLC) 8. Liability for Entity Partners are jointly and General partners are Members are not liable Shareholders are not Shareholders are not Obligations severally liable for jointly and severally for the obligations of the liable for the obligations liable for the obligations obligations of liable for the LLC unless the liability of the corporation, of the corporation, partnership arising out obligations of the veil is pierced. subject to certain subject to certain of a partner’s wrongful limited partnership. instances where instances where acts and jointly for all Limited partners are not creditors have pierced creditors have pierced other obligations of the personally liable for the the corporate veil. the corporate veil. partnership. obligations of the limited partnership, except to the extent they take part in limited partnership management or if the limited partner’s name is used in the limited partnership’s name and such liability arises out of a third party’s belief that such limited partner was a general partner. 9. Liability of Owners Each partner has a General partners owe a Members are liable for Shareholders are Shareholders are to the Entity and fiduciary duty to the fiduciary duty to the contributions and generally not liable generally not liable Other Owners partnership and other partnership and other wrongful distributions except for contributions except for contributions partners. partners. Both limited received. Members in a and wrongful and wrongful partners and general member-managed LLC distributions received. distributions received. partners must are generally liable for contribute agreed on breaches of fiduciary capital contributions duties. and are liable for wrongful distributions received. 10. Piercing the Entity Partners have liability General partners are Body of law relating to Shareholders may be Shareholders may be Veil already. already liable. Limited corporations will most liable. liable. partners that participate likely apply. in management can be liable. Characteristic General Partnership Limited Partnership Limited Liability S Corporation C Corporation Company (LLC) 11. Fiduciary Duties of Partners have fiduciary General partners have a Unless a company is Officers and directors Officers and directors Management duties and the obligation fiduciary duty of care member managed, have statutory duties of have statutory duties of to act in good faith and and loyalty with the members have no good faith to act in the good faith to act in the with fair dealing. obligation to act in fiduciary duties. best interest of the best interest of the good faith and fair Managers, and members corporation and not to corporation and not to dealing. in a member-managed usurp corporate usurp corporate company, do have a opportunities. If opportunities. If fiduciary duty of care minority shareholders minority shareholders and loyalty and the are oppressed by the are oppressed by the obligation to act in good majority shareholders, majority shareholders, faith and with fair the majority the majority dealing. shareholders may be shareholders may be liable. liable. 12. Who Can Be An No restrictions. No restrictions. No restrictions. Numerous restrictions, No restrictions. Owner including disallowing ownership by non- resident aliens, partnerships, corporations, and other specific persons and entities. 13. Number of Owners Need at least two Need at least one No restrictions. At least one, but no No restrictions. partners. general partner and one more than 100, limited partner. shareholders. 14. Allocations of Partners can agree on Partners can agree on Members can agree on Because only one class Shareholders can Distributions any financial any financial any financial of stock is allowed, establish different arrangements subject to arrangement as long as arrangement as long as shareholder’s share of classes of stock that can economic reality. it has economic reality. it has economic reality. distributions must be provide for different or Default rule is that based on proportionate preferential returns. partners will share in stock ownership. Default rule is that proportion to the value distributions are based of their contributions. on proportionate stock ownership. Characteristic General Partnership Limited Partnership Limited Liability S Corporation C Corporation Company (LLC) 15. Transfers of Transferable, but the Transferable, but the Membership interests Stock is freely Stock is freely Ownership Interests transferee will not be transferee will not be are transferable, but the transferable unless transferable unless admitted as a partner admitted as a partner transferee will not be restricted by the articles, restricted by the articles, without the consent of except as provided in admitted as a member bylaws, or a bylaws, or a the other partners. the partnership except as provided in shareholders’ agreement shareholders’ Without such consent, agreement or, if not the operating agreement or by the restrictions agreement. the transferee obtains an provided, with the or, if not provided, imposed under interest in the profits consent of the other without the consent of subchapter S. and losses only. Owners partners. Without such all the other members. can agree on consent, the transferee Owners can agree on restrictions. obtains an interest in restrictions. the profits and losses only. Owners can agree on restrictions. 16. Entity Taxation No tax at entity level. Unless elected to be Unless elected to be Pass-through taxation to Taxed as a corporation Under IRC treated as a corporation treated as a corporation owners unless built-in at the corporate level. under check-the-box under check-the-box gain, excess passive rules,