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TAX YEAR
2019
Business Entity

Pros and Cons

Business Entity Pros and Cons Multimember LLC

Pros • Limited liability for all members, except for malpractice.
Sole Proprietorship • Unlimited number of members.
• Separate entity from members, allowing for greater
Pros • No formal creation process.
• Easy to operate and dissolve. flexibility in operations.
• No separate tax return. • Ownership is in the form of membership interest and can
• Easy to integrate business use of home deductions. be transferred more easily than ownership in a single
• No double taxation of profits. member LLC.
• No double taxation of profits.
Cons • No liability protection.
• Self-employment tax is assessed on entire profit of the Cons • Requires a separate tax return.
business. • Laws regulating LLCs vary widely among states.
• Transfer of ownership can be complex. Good Fit • Businesses requiring equity capital.
• Limited access to fringe benefits for owners. • Businesses with potential liability in operations.
• Businesses intended to exist beyond the lives of the
Good Fit • Seasonal or part-time businesses.
• Businesses with little liability. members.
• Home-based businesses. • Businesses expecting changes in ownership over time.
• Businesses intended to operate for the owner’s life only.
General Partnership
Single Member LLC Pros • Easy to create.
• No limit on partner number or type.
Pros • Simple creation process.
• Easy to operate and dissolve. • Can be used to hold investments in other businesses and
• No separate tax return. consolidate multiple lines of business.
• Easy to integrate business use of home deductions. • Flexible allocation of profit, loss, and distributions.
• Liability protection for member, except for malpractice. • Favorable tax treatment when liquidated.
• No double taxation of profits. • No double taxation of profits.
Cons • Self-employment tax is assessed on entire profit of the Cons • Requires a separate tax return.
business. • Unlimited liability for all partners.
• Transfer of ownership can be complex. • Difficult to dissolve or change ownership without
• Limited access to fringe benefits for owners. substantial planning.
• Laws regulating LLCs vary widely among states. • Requires tracking of basis for partners, both inside and
outside the partnership.
Good Fit • Businesses with potential liability in operations. • Individual partner’s share of income is subject to self-
• Businesses intended to operate for the owner’s life only. employment taxes.
Good Fit • Two established businesses who wish to work as one.
• Partners wishing to consolidate multiple entities into one
entity.