1. C Corporation – mostly used for corporations planning on raising venture capital

Pros:

- Personal liability protection (you are not personally liable)

- Easier to raise outside funding by selling “shares”

- Can register in more tax-friendly states such as Delaware or Nevada

- “Shares” are often more liquid (easier to sale) than ownership in an LLC or LLP.

Cons:

- Costly to start, run, and terminate

- Requires more organized record keeping to stay compliant

- More complicated tax requirements

- Requires an independent Board of Directors (may be a pro if you need advisors for your business).

2. S Corporation – allows the corporation to allow pass through taxation to shareholders rather than paying corporate taxes.

Pros:

- Pass-through taxation (lower corporate tax rates)

- Same liability protection as a C corporation

- Similar benefits to a C Corporation

Cons:

- Not attractive to outside investors

- Can only have one class of stock

- Time consuming to manage

3. Limited Liability Company (“LLC”)

Pros:

- Easy to set-up and manage compared to a C or S corporation

- Often cheaper to set-up and manage then a C or S corporation

- Allow for multiple owners (members) and managers

- Liability protection like a C or S corporation

- No double taxation like a C corporation

Cons:

- Some states (California) require a high minimum tax be paid, even if no income is generated.

- Requires an operating agreement among its owners/members

- Income loss can flow through to the owners/members

- Not attractive to outside investors

- Less liquid than a C corporation where shares are held. More difficult to sell your ownership in an LLC. C corporations allow you to sell your common stock shares, but LLC’s often do not have common stock for sale.

4. Limited Liability Partnership (“LLP”) - similar to an LLC and most commonly used by professional organizations such as law, consulting, and medical firms where “partners” share in the profits/losses of the partnership.

Pros:

- Easier to set-up than a corporation (similar to an LLC)

- Liability protection like a C corporation with out the hassle and cost of managing a C corporation

- Partners may not be held responsible for the action of the other partners.

Cons:

- Partners can be held personally responsible for company’s income losses (pass-through taxation).

- Some states do not recognize LLP’s

5. Sole Proprietorship: Perfect for companies with a single founder or single employee

Pros:

- Easy to register and set-up

- Limited record keeping requirements

- Business losses can be deducted from your personal income which can help lower your tax rates.

- Limited legal requirements and a lot of flexibility

Cons:

- You can be held personally liable for accidents or mishaps

- Difficult to raise outside capital under this entity structure

- No business partners to help you grow your business

- May still be required to file a fictitious business name