OWNERSHIP STRUCTURES
The ownership structure will not only define who owns
the business, but will also determine who controls it, who
assumes liability, how profits are divided, and how your
business will be taxed.
C (General) Corporation
A business formed by law as a separate legal entity from its
owners (stockholders and shareholders)
ADVANTAGES
• Has a lifespan independent from its owners (stockholders)
• Fringe benefits costs are tax-deductible
• Personal assets are protected from business liability
• Ownership can be transferred through the sale of stock
• Easy to raise operating capital through the sale of stock
• Ownership can change without affecting
daily management
DISADVANTAGES
• Incorporating involves considerable start-up expenses
• Subject to more district and federal legislation
• Corporate earnings subject to double taxation
• Many legal formalities exist when filing corporate status
• Activities are limited
S Corporation
A business similar to a General Corporation, with the
exception of specific IRS requirements
ADVANTAGES
• Already exists as a corporation
• Corporate earnings avoid double-taxation
DISADVANTAGES
• Difficult to qualify for IRS requirements
Limited Liability Partnership (LLP)
A business in which partners are given the same limited
liability protection as professional corporations
ADVANTAGES
• Tax advantage of flow-through tax treatment for
LLP partners
• Simple for an existing partnership to become an LLP
DISADVANTAGES
• A sole owner cannot set up an LLP as a partnership; an
LLP must have at least two partners to exist
There are many ways to set up a business, and each
business is subject to a unique tax situation. You
should consult with a qualified tax professional and a
lawyer to determine the appropriate structure for your
business. Visit bit.ly/dcbizstructure or business.dc.gov for
more information.
General Partnership
A business owned by two or more persons who have
agreed—verbally or in a formal written statement—to
operate a business
ADVANTAGES
• Easy to establish
• Partners share workload and responsibilities
• Financing is easier to obtain than for a sole proprietorship
• The partners share all profits and reap all benefits
of ownership
DISADVANTAGES
• May be more expensive to start
• Partners have unlimited liability for business expenses
• Each partner is bound by the actions of the other partner
• Decision-making authority is divided
• Loss of one partner may dissolve the business
• Partnership may be difficult to end
Limited Partnership
A business similar to a General Partnership, however,
one invests assets into the business at their own risk and
is limited to the amount of capital invested. The investor
is not involved in management and does not share in the
liability for debts or losses
ADVANTAGES
• Relatively easy to establish
• Partners share in start-up expenses
• Financing is easier to obtain than for a sole proprietorship
• Partners share all profits and reap all benefits
of ownership
• Partners’ assets are not at risk from creditors
DISADVANTAGES
• More expensive to set up initially due to the
requirement for a written agreement
• Operating (general) partner has unlimited liability
for expenses
• Loss of one partner may dissolve the business
• Partnership may be difficult to end
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