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ENTITY PROS & CONS

Small Business Resources USA, Inc.

Unsure about what entity would best suit your business' needs? Schedule an appointment to discuss!


ENTITY
PROS
CONS
Individual
  • Cheapest
  • Business losses are deductible against other income
  • Unlimited liability
  • Cannot be transferred to another (only assets & customer list can be sold)
  • Deductible business losses are limited to 2 years out 5
  • Hobby losses are not deductible
  • All profits are subject to social security & Medicare tax
  • Seen as “Mom & Pop” has less credibility
Partnership
  • Can be transferred to new owners by agreement
  • Business losses are deductible against other income    
  • Profit & losses can be allocated as preferred to owners
  • Unlimited liability for general partner
  • Business profits are subject to social security & Medicare tax unless limited partner      
LLC (Limited Liability Co.)
  • Limited Liability
  • Can be transferred to new owners by agreement
  • Business losses are deductible against other income      
  • Hobby type activities do not send up a flag to the IRS
  • If Partnership tax treatment is taken, profit & losses can be allocated as preferred to owners    
  • If desired, you can select to  be treated as a corporation or S corp. for tax purposes
  • Costs more to set up & file taxes
  • Case law thin so legal outcomes are not certain
  • Potential clients may be concerned that an LLC doesn’t have to stand behind their product or service (i.e. not easily sued)
Corporation
  • Limited Liability
  • Easy to transfer to another
  • Business losses are deducted by the corporation        
  • Hobby type activities do not send up a flag to the IRS     
  • Substantial image to public
  • Can raise funds through sale of stock tax free
  • Costs more to set up & file taxes
  • Business losses are deductible by the corp. only   
  • Double taxation. Corp. taxed on profits and owners taxed again when dividends received
  • Subject to Florida income tax (5.5% after first $5000)
  • Active owner must be paid as an employee
S Corporation
  • Limited Liability
  • Easy to transfer to another
  • Business losses are deductible against other income  
  • Hobby type activities do not send up a flag to the IRS
  • Only owners’ salary subject to social security & Medicare tax
  • No Florida or federal tax paid by corporation.
  • Profits taxed only once (in owners’ return)
  • Substantial image to public
  • Can raise funds through sale of stock tax free
  • Costs more to setup and file taxes    
  • Active owner must be paid as an employee
  • Generally not a good entity to hold real estate for long term purposes