Limited liability for owners?

Yes.

Yes.

No for general partners; yes for limited partners. Limited partners cannot be actively involved in the business without losing limited liability. Limited liability partnerships (LLP) may either (1) provide partners with protection from vicarious liabilities, or (2) provide complete liability protection, depending on the provisions of the state?s LLP Act.

Yes.

No, liability is unlimited.

Flexible ownership and capital structure?

Yes.

No. Limited to 100 shareholders and one class of stock. Types of shareholders limited.

Yes. Need at least two partners.

Yes. LLCs with a single member are disregarded for federal taxes. LLCs must have two or more members to be taxed as partnerships.

No?one owner.

Continuity of life for entity?

Yes.

Yes, but stock ownership must be monitored.

Generally, no. Depends on state law provisions. Terminates for federal taxes if 50% or more of capital and profits interests are transferred during a 12-month period.

Usually. Depends on state law provisions. Terminates for federal taxes if 50% or more of capital and profits interests are transferred during a 12-month period.

No.

Centralized management of entity?

Yes.

Yes, but number of stockholders is limited, so may not be practical.

No for general partnership; usually yes for limited partnership. Limited partners cannot participate in management.

Often, yes.

No?one owner.

Free transferability of ownership interests?

Yes, but may be contractually limited by a buy/sell agreement.

Yes, but must observe limitations on who can own stock. Also may be contractually limited by a buy/sell agreement.

Generally, no. May be limited by buy/sell provisions in partnership agreement or separate agreement.

Generally, no. May be limited by buy/sell provisions in partnership agreement or separate agreement.

No, but as a practical matter, the entire business may be sold.

Degree of administrative complexity?

High.

High.

Moderate.

Moderate.

Low.

Certainty of legal and tax outcomes?

High.

High to moderate.

Moderate.

Moderate.

High.

Double taxation of income?

Yes, however, see IRC Sec. 1202 on qualified small business corps.

No, unless former C corp and built-in gains tax applies.

No.

No.

No.

Ability to retain income at lower current tax cost?

Yes. However, the current reduced individual rates are as low as corporate rates.

No.

No.

No.

No.

Tax treatment of fringe benefits for owners?

Good.

Poor, if own more than 2% of stock.

Poor.

Poor.

Poor.

SE tax on owner distributions?

No.

No.

Generally, yes, unless partner is a limited partner. General partners treat their share of partnership ordinary trade or business income as SE income. Guaranteed payments for services or the use of capital (if the partnership is engaged in a trade or business) are also SE income. Limited partners include only guaranteed payments for services as SE income.

Generally, yes, unless member is treated as a limited partner. Members treated as general partners treat their share of LLC ordinary trade or business income as SE income. Guaranteed payments for services or the use of capital (if the LLC is engaged in a trade or business) are also SE income. Members treated as limited partners include only guaranteed payments for services as SE income.

Yes.

Flexibility to select tax year?

Yes.

Limited.

Limited.

Limited.

Limited. [See Jerome H. Vance, TC Memo 1989-95, PH TCM 89095 (1989).]

Passive loss rules apply?

No, unless a PSC or closely held corp.

Yes?at shareholder level.

Yes?at partner level. Treatment of limited partners is unfavorable.

Yes?at member level; unclear if members treated as limited partners.

Yes.

Deduction for corporate dividends received?

Yes.

No.

No.

No.

No.

Owners eligible for loans against qualified plan accounts?

Yes.

Yes.

Yes.

Yes.

Yes.

Favorable tax rate on long-term capital gains?

No, regular corporate rates apply.

Yes.

Yes.

Yes.

Yes.

Double taxation upon liquidation?

Yes.

No. However, sale may generate ordinary income from recapture that can?t be offset by capital loss on sale.

No. However, sale may generate ordinary income from recapture that can?t be offset by capital loss on sale.

No. However, sale may generate ordinary income from recapture that can?t be offset by capital loss on sale.

No. However, sale may generate ordinary income from recapture that can?t be offset by capital loss on sale.

Personal holding company tax applies?

Yes.

No.

No.

No.

No.

Accumulated earnings tax applies?

Yes.

No.

No.

No.

No.

Unreasonable owner compensation issue applies?

Yes. For unreasonably high compensation.

Yes, for unreasonably low compensation.

No.

No.

No.

PSC rules apply?

Yes.

No.

No.

No.

No.

Limitations on use of cash method?

Yes, but smaller corporations and PSCs can use cash method.

No, unless the corporation maintains inventories or is a ?tax shelter.? (However, if a gross receipts test is met, the cash method may be used even if inventories are maintained.)

No, unless the partnership has a C corporation partner, maintains inventories, or is a ?tax shelter.? (However, if a gross receipts test is met, the cash method may be used even if inventories are maintained.)

No, unless the LLC has a C corporation member, maintains inventories, or is a ?tax shelter.? (However, if a gross receipts test is met, the cash method may be used even if inventories are maintained.)

No.

Limitations on use of NOLs and other ?tax attributes? after ownership change?

Yes.

N/A. Losses pass through to owners.

N/A. Losses pass through to owners.

N/A. Losses pass through to owners.

No.

Entity-level AMT?

Yes, but smaller corporations are excepted.

No, but AMT information must be provided to shareholders.

No, but AMT information must be provided to partners.

No, but AMT information must be provided to members.

No, but AMT information can affect owner?s AMT calculation.

Potential ability to reduce payroll taxes of owner-employees?

No.

Yes, within limits of reasonableness.

No, but may benefit from employing owner?s children under age 18.

No, but may benefit from employing owner?s children under age 18.

No, but may benefit from employing owner?s children under age 18.

Potential favorable treatment of owner-level interest expense on debt to inject capital or acquire ownership interest?

No.

Yes.

Yes.

Yes.

Yes.

Double taxation at state and local tax level?

Generally, yes.

Sometimes.

Rarely.

Rarely.

No.

Additional owner-level tax basis from entity-level debt (for loss deduction purposes)?

No.

Yes, but only for direct loans from shareholders.

Yes.

Yes, but generally not for at-risk purposes.

N/A, but owner gets basis from debt since no entity exists.

Basis adjustments upon purchase of ownership interest?

No.

No.

Yes. Mandatory basis adjustments may be required on certain transfers or distributions.

Yes. Mandatory basis adjustments may be required on certain transfers or distributions.

No.

A lot of flexibility to make tax-free contributions and distributions?

No.

No.

Yes.

Yes. .

Yes.

Ability to make special tax allocations among owners?

No.

No.

Yes.

Yes.

No.

Ability to shift entity income among family member owners?

No.

To a degree, by manipulating wages of employee-owners.

Yes, within limits of family partnership rules.

Yes, within limits of family partnership rules.

Yes, by employing family members.

Possibility of corporate-level built-in gains tax, excess net passive income tax, and LIFO recapture tax if former C corporation?

No.

Yes.

No.

No.

No.

Potential loss of favorable pass-through tax rules if ownership and capital structure rules violated?

No.

Yes.

No.

No.

No.

Treatment of gain on sale of ownership interest?

Capital.

Capital.

May be part ordinary under ?hot assets? rules. (See IRC Sec. 751.)

May be part ordinary under ?hot assets? rules. (See IRC Sec. 751.)

May be part ordinary due to recapture items.

Treatment of loss on sale of ownership interest?

Capital unless stock is Section 1244 stock.

Capital unless stock is Section 1244 stock.

Capital.

Capital.

Generally, capital (depends on nature of assets sold).

At-risk rules apply?

No, unless closely held.

Yes, at shareholder level.

Yes, at partner level.

Yes, at member level.

Yes.

Section 179 dollar limitation applied at single level?

Yes.

No. The dollar limitation applies at the S corporation level and again at the shareholder level.

No. The dollar limitation applies at the partnership level and again at the partner level.

No. The dollar limitation applies at the LLC level and again at the member level.

Yes.

Ownership interest available to creditors?

Yes.

Yes.

Limited. Creditor can obtain charging order to receive distributions.

Limited. Creditor can obtain charging order to receive distributions.

Yes.

Valuation discounts available for estate tax valuation?

Yes.

Yes.

May be limited. IRS may argue for liquidation value.

Probably, yes. However may be limited if LLC terminates on death of member.

No.