What are the advantages and disadvantages of each type of business entity?
Partnerships are used less today because it is more difficult to create centralized management and to sell securities. Also, partnerships do not offer owners the benefit of limited liability. Corporations are the best type of entity for centralized management and for creating different classes of securities to raise capital. Corporations also provide owners the benefits of limited liability. From a tax point of view, corporations can be either a Subchapter C Corp. or a Subchapter S Corp. A Subchapter C Corp. is taxed as a separate entity from the owners. A Subchapter S Corp. is generally not taxed as a separate entity. The owners of a Subchapter S Corp are generally able to deduct corporate losses from their personal taxable income (but only up to the dollar amount the owners have invested in the company) and corporate profits are added to their taxable income. Subchapter S Corp. rules restrict the number and type of shareholders and the type of securities the company can sell. Therefo
