Question

Chart of Entity Comparison

	Sole Proprietor	Partnership	C Corporation	S Corporation	LLC
Legal Status	Same entity as owner	Separate entity from owner	Separate entity from owner	Separate entity from owner	Separate entity from owner
Tax Year	Same as owner	Majority interest rules; principal partner rules; or the least aggregate deferral of income rule; exceptions may be the business purpose of 444 election	Calendar or fiscal year	Calendar year; 444 election; or business purpose demonstrated	Depends on tax status as sole proprietorship, partnership, or corporation
Self-employment Tax	Yes	Yes if general partner, generally no if limited partner	No, since payment for services is in the form of wages	No, since payment for services is in the form of wages	Depends on tax status as sole proprietorship, partnership, or corporation
Charitable Contributions	Generally 50% limitation	Generally 50% limitation at partner level	Generally 10% limitation	Generally 50% limitation at shareholder level	Depends on tax status as sole proprietorship, partnership or corporation
Management	Owner	May be divided among partners	Board of Directors	Board of Directors	Per articles of organization
Number of Owners	One	Unlimited	Unlimited	100	Depends on tax status as sole proprietorship, partnership, or corporation

Question:

Choose four characteristics (Rows) and describe how two of the entity selections options differ (e.g. Basis Decrease from Operations in Sole Proprietor vs. C Corporation)

Answer 1

The characteristics of entities are as follows:

1.Legal status : (a)Sole proprietor - A sole proprietor is a type of business in which it has no separate existence from its owner. Income and expenses are reported on the owner's personal income tax return. For eg. single person art studio, a local grocery, or an IT consultation service.

(b) Partnership - A partnership is an agreement between two or more persons who join together to carry on a business venture for profit. It is not a corporate or separate entity; rather it is viewed as an extension of its owners for legal and tax purposes, although a partnership may own property as a legal entity.

(2)Self employment tax: (a) Sole proprietor- Sole proprietors make contributions to the Social Security and Medicare systems; taken together, these contributions are called self employment taxes. These are equivalent to the payroll tax for employees of a business.

(b) Partnership- A general partner pays self-employment tax on earnings from self-employment whereas a limited partner does not pay self-employment tax on his share of partnership income.

3. Management: (a) Sole Proprietor- A sole proprietor is the boss of his company. In sole proprietorships, the one owner makes all the management and business decisions.

(b) Partnership - Partners in a general partnership are considered co-owners. By default, partners also have equal rights to manage the partnership.

4. Number of owners : (a) Sole proprietor- In sole proprietor the number of owner is one because it is a business that is formed by one person who acts as the sole owner and operator of the business

(b) Partnership - Number of owners are minimum 2 and maximum 50 in any kind of business activities because partnership is an 'agreement' so there must be minimum two partners.