LEGAL FORMS OF BUSINESS
Sole Proprietorship Ownership By a single individual Partnership Corporation Sub-S Corporation By shareholders: number of shareholders limited to 75 Limited Liability Partnership 2 or more persons or entities (except law firms) Limited Liability Company 1 or more persons or entities (except certain providers of professional services and law firms) File Articles of Organization. For nonHawai`i companies, file Application for Certificate of Authority
By two or more persons
By unlimited number of shareholders
Business Registration (State Department of Commerce and Consumer Affairs)
Not required, unless public notice of trade name is desired
Within 30 days after formation, file certificate of limited or general partnership
File Articles of Incorporation. For non-Hawai`i corporations, file Application for Certificate of Authority and Certificate of Good Standing
Same as regular corporation
File certificate of limited liability partnership; for non-Hawai`i partnerships, file Application for Registration as Foreign Limited Liability Partnership By general partners
Management
Entirely in hands of owner
By general partners
Corporation's board of directors
Same as regular corporation
Membermanaged, or managermanaged
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Sole Proprietorship Life Will terminate with death or disability of owner
Partnership
Corporation
Sub-S Corporation Same as regular corporation
Limited Liability Partnership
Limited Liability Company
Generally for a specific, agreedupon term. Partnership may be terminated by death, withdrawal, insolvency, or legal disability of a general partner
Unlimited, unless by state law or charter
Generally for a May be for a specific, agreed- specific agreedupon term. upon time, or at Partnership may will be terminated by death, withdrawal, insolvency, or legal disability of a general partner Limited to amount of investment Limited to amount of investment, or as specified in Articles of Organization
Liability
Owner liability Unlimited for Shareholders' unlimited. general partners. liability limited Personal property General partners to their can be attached are jointly and investment in by creditors to severally liable for corporation stock settle business obligations of debts partnership. Limited partner's liability limited to amount invested Owner taxed on business profits whether or not distributed Partners taxed on share of partnership income whether or not distributed Corporation taxed on taxable income, whether or not distributed to shareholders
Same as regular corporation
Taxation
Shareholders Partners taxed on Members taxed taxed on share of on share of taxable partnership company income of income whether or income whether corporation, not distributed or not whether or not distributed distributed
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Sole Proprietorship Advantages Uncomplicated -ease of formation Greater flexibility of action Singleness of control Economy of operation
Partnership
Corporation
Sub-S Corporation Legal entity separate from individuals Limited personal liability Continuity of existence Continuity of management Readily transferable interests Possible separation of ownership and management Net operating loss deductible by shareholders
Limited Liability Partnership Division of responsibilities Ease of formation
Limited Liability Company Legal entity separate from individuals Limited personal liability Continuity of existence Continuity of management Easier to raise capital Incentive to key employees Readily transferable interests Possible separation of ownership and management
Division of responsibilities Ease of formation Greater flexibility of action Increased sources of capital
Legal entity separate from individuals Limited personal liability Continuity of existence Continuity of management Easier to raise capital Incentive to key employees Readily transferable interests Possible separation of ownership and managemen
Limited personal liability Greater flexibility of action Increased sources of capital Incentive to key employees Tax advantage by avoiding corporate income tax
Incentive to key Tax advantage by employees avoiding corporate income Tax advantage by tax avoiding corporate income tax Maximum centralized authority
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Sole Proprietorship Disadvantages Unlimited personal liability Legal life ends with owner's death Difficulty in raising capital Possible personnel difficulties Owner's salary cannot be treated as expense, hence, not tax deductible
Partnership
Corporation
Sub-S Corporation Only one class of stock outstanding Difficult, costly formation Subject to close government regulation Inflexibility of operations
Limited Liability Partnership Impermanence of existence Division of control/ authority Difficult to find compatible partners Difficult to raise additional capital Owners' salary/wage cannot be treated as expense, hence, not tax deductible
Limited Liability Company Difficult, costly formation Subject to close government regulation Scope limited by company charter Inflexibility of opera
Unlimited personal liability Impermanence of existence Division of control/ authority Difficult to find compatible partners Difficult to raise additional capital Owners' salary/wage cannot be treated as expense, hence, not tax deductible
Difficult, costly formation Subject to close government regulation Scope limited by corporate charter Inflexibility of operations Double taxation by paying both corporate and personal income taxes
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