This overview provides some basic information on business form and federal taxation. There are other options and details that apply to each form of business. For example, a limited liability company may choose to be treated as a corporation for tax purposes because it provides advantages in terms of deductions that a partnership tax status does not. This chart should help you understand the basics and prepare you for a meeting with your attorney who is equipped to help you decide what business form is best suited to your personal tax situation.

• Sole Proprietorship
  Entity: Not an entity separate from the owner, so no separate tax return.
  Filing: Owner includes the operations of the sole proprietor-ship on his/her individual tax return.
  Federal Employer Tax Number: If a sole proprietor has employees, then a tax number is required.
  Multiple Owners: No. If the business has multiple owners it is no longer a sole proprietor-ship.
  Taxable Year: Generally, the same as the owner's, which is usually a calendar year.

• Partnership
  Entity: Not separate taxable entity, but must file an information tax return.
  Filing: Partners include their share of the income, gain, loss, deductions, and credits of the partnership on their personal tax return.
  Federal Employer Tax Number: Required.
  Multiple Owners: Requires two or more people who carry on a business for profit.
  Taxable Year: If all partners do not have the same taxable year, the partnership will have to adopt the taxable year of majority interest or a calendar year if there is no majority interest.

• S Corporation
  Entity: Treated as a partnership for tax purposes but may not have more than 75 shareholders
  Filing: Shareholders include their share of the income, gain, loss, deductions, and credits of the corporation on their personal tax return.
  Federal Employer Tax Number: Required.
  Multiple Owners: Usually more than one shareholder. No more than 75 shareholders, who must be individuals, or the IRS will not treat corporation as a partnership for tax purposes.
  Taxable Year: Can usually choose its taxable year.

• C Corporation
  Entity: A taxable entity separate from its shareholders that may have an unlimited number of shareholders
  Filing: Corporation must file and pay taxes at the corporate level; the shareholders must pay taxes on the distributions they receive.
  Federal Employer Tax Number: Required.
  Multiple Owners: Usually more than one shareholder.
  Taxable Year: Can usually choose its taxable year.

• Limited Liability Company
  Entity: Not always a separate taxable entity, but must file an information tax return.
  Filing: Depending on its election, may choose to be taxed as a partnership or a corporation.
  Federal Employer Tax Number: Required.
  Multiple Owners: No. Every state except Massachusetts allows single member LLC.
  Taxable Year: If members do not all have the same taxable year, the LLC must adopt the taxable year of majority interest or a calendar year if there is no majority interest.