Silicon Valley SBDCSan Jose, CA

Legal Structure Summary

Sole Proprietorship
  1. Individual Ownership
  2. Controlled by owner
  3. Owner is personally liable for all business debts
  4. All business income is considered personal income to the owner and is taxed at personal income tax rates

General Partnership

  1. Two or more individual owners according to partnership agreement
  2. Controlled by partners in accordance with partnership agreement
  3. All partners are jointly and severally liable for all partnership debts
  4. Individual partners' prorated share of partnership income or loss is included on their personal income tax return and taxed at personal rates

Limited Partnership(must register with the Calif. Secretary of State)

  1. Two or more owners; two classes of owners: general partnership agreement
  2. General partner(s) may dissolve business at their discretion, limited partners do no have this option. General partners generally run business, as specified in partnership agreement
  3. General partner(s) fully liable for all business debts, limited partners only liable to extent of capital invested
  4. Taxation same as general partnership

"C" Corporation

  1. Ownership by Shareholders (Unlimited number)
  2. Owners share ownership through stock, and business is managed through a Board of Directors; certain legal regulations also apply
  3. Owner's liability is limited to amount of capital contributed unless acting as guarantor of corporate debt
  4. Corporation pays tax on business income at corporate tax rate; profits tax rate; profits distributed to shareholders and are taxed at personal income tax rate

Subchapter "S" Corporation

  1. Ownership by Shareholders (35 or fewer)
  2. Control same as "C" Corporation
  3. Owner's liability Same as "C" Corporation above; generally limited to assets in corporation
  4. Corporation not taxed; income is taxable to the shareholders at their personal income tax rate

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Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA or HSU Sponsored Programs Foundation.