# The entity menu

> Sole proprietorship, partnership, LLC, C corporation, S election, LP and LLP, PBC, 501(c)(3): what each is under state law and for federal tax.

Source: https://lopifi.com/learn/business-entity-types-explained
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What are the different types of business entities in the US?** Sole proprietorship, partnership, LLC, C corporation, S election, LP and LLP, PBC, 501(c)(3): what each is under state law and for federal tax.

Every business entity is two things at once. Under **state law** it is a legal form — a corporation, an LLC, a partnership, or no entity at all — and that decides who is liable for its debts, who owns it and how it raises money. Under **federal tax law** it has a classification — a corporation, a partnership, or a [disregarded entity](https://lopifi.com/md/glossary/disregarded-entity) — and that decides who pays the tax and on which return.

> “When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file.”

— [IRS, Business structures](https://www.irs.gov/businesses/small-businesses-self-employed/business-structures), Business structures — sole proprietorship, partnership, corporation, S corporation, LLC

The two layers don't line up one-to-one. A corporation formed under a state's corporation law is a corporation for tax, full stop. An LLC isn't: it takes a default classification by its number of members, and can choose another with a [check-the-box election](https://lopifi.com/md/glossary/check-the-box-election) on Form 8832. A corporation that qualifies can elect to be an [S corporation](https://lopifi.com/md/glossary/s-corporation) on Form 2553.

> “unless the entity elects otherwise, a domestic eligible entity is— (i) A partnership if it has two or more members; or (ii) Disregarded as an entity separate from its owner if it has a single owner.”

— [Treas. Reg. §301.7701-3(b)(1)](https://www.law.cornell.edu/cfr/text/26/301.7701-3), Default classification of a domestic eligible entity — the check-the-box rules

| Entity | Owners shielded? | Taxed as (default) | Federal return | Raise venture capital? |
| --- | --- | --- | --- | --- |
| [Sole proprietorship](https://lopifi.com/md/glossary/sole-proprietorship) | No | The owner | Schedule C | No |
| [General partnership](https://lopifi.com/md/glossary/general-partnership) | No | Partnership | Form 1065 + K-1s | No |
| [LLC](https://lopifi.com/md/glossary/limited-liability-company), one member | Yes | Disregarded | The owner's | Rarely |
| LLC, two or more members | Yes | Partnership | Form 1065 + K-1s | Rarely |
| [C corporation](https://lopifi.com/md/glossary/c-corporation) | Yes | Corporation | Form 1120 | Yes |
| [S corporation](https://lopifi.com/md/glossary/s-corporation) (an election) | Yes | Pass-through | Form 1120-S + K-1s | No |
| [Public benefit corporation](https://lopifi.com/md/glossary/public-benefit-corporation) | Yes | Corporation | Form 1120 | Yes |
| [501(c)(3)](https://lopifi.com/md/glossary/501-c-3-organization) | Yes | Tax-exempt | An exempt organization's information return | No — no owners |

The menu: what each is under state law, and for federal tax by default.

> “Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. … Limited liability partnerships are similar to limited partnerships, but give limited liability to every owner.”

— [SBA, Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure), Choose a business structure — the SBA's overview of the options

*[Figure: three statements]*

Every entity keeps the same three statements; what changes is the equity section and the tax line. Illustrative figures.

The difference shows up in the books first in equity. Northwind, a corporation, records its founders' $60,000 as common stock and keeps [retained earnings](https://lopifi.com/md/glossary/retained-earnings). An LLC or partnership keeps a capital account per owner. A sole proprietor has one capital account and records money taken out as a draw.

> **Pick the legal form for liability and fundraising, then the tax classification for who pays — they are separate choices that happen to share a name.**

In this lesson: a page for each entity — what it is, how it's taxed, what it files, what it's good and bad at, and who it suits.

## Pages in this lesson

- [Sole proprietorship](https://lopifi.com/md/learn/business-entity-types-explained/sole-proprietorship) — 4 min. What is a sole proprietorship and how is it taxed?
- [General partnership](https://lopifi.com/md/learn/business-entity-types-explained/general-partnership) — 4 min. What is a general partnership and how is it taxed?
- [Limited liability company (LLC)](https://lopifi.com/md/learn/business-entity-types-explained/llc) — 5 min. What is an LLC, and how is an LLC taxed?
- [C corporation](https://lopifi.com/md/learn/business-entity-types-explained/c-corporation) — 4 min. What is a C corporation, and what is double taxation?
- [S corporation](https://lopifi.com/md/learn/business-entity-types-explained/s-corporation) — 3 min. What is an S corporation?
- [LP and LLP](https://lopifi.com/md/learn/business-entity-types-explained/lp-and-llp) — 3 min. What is the difference between an LP and an LLP?
- [Public benefit corporation (PBC)](https://lopifi.com/md/learn/business-entity-types-explained/public-benefit-corporation) — 3 min. What is a public benefit corporation?
- [Nonprofit 501(c)(3)](https://lopifi.com/md/learn/business-entity-types-explained/nonprofit-501c3) — 2 min. What is a 501(c)(3) nonprofit?

## Where this lesson's rules come from

- [IRS, Business structures](https://www.irs.gov/businesses/small-businesses-self-employed/business-structures) — Business structures — sole proprietorship, partnership, corporation, S corporation, LLC (irs)
- [Treas. Reg. §301.7701-3(b)(1)](https://www.law.cornell.edu/cfr/text/26/301.7701-3) — Default classification of a domestic eligible entity — the check-the-box rules (regulation)
- [SBA, Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure) — Choose a business structure — the SBA's overview of the options (agency)
- [Form 8832 (Rev. December 2013)](https://www.irs.gov/pub/irs-pdf/f8832.pdf) (PDF) — Form 8832, Entity Classification Election (PDF) (form)
- [Wikipedia, “Flow-through entity”](https://en.wikipedia.org/wiki/Flow-through_entity) — Flow-through entity (reference)

## Read further

- https://lopifi.com/md/startups/startup-compliance-calendar
- https://lopifi.com/md/accounting/form-1120

- **Track:** [Entity types](https://lopifi.com/md/learn/entities)
- **Lesson:** Lesson 1 of 9 — 6 min
- **Terms taught:** [Sole proprietorship](https://lopifi.com/md/glossary/sole-proprietorship), [General partnership](https://lopifi.com/md/glossary/general-partnership), [Limited liability company](https://lopifi.com/md/glossary/limited-liability-company), [C corporation](https://lopifi.com/md/glossary/c-corporation), [S corporation](https://lopifi.com/md/glossary/s-corporation), [Disregarded entity](https://lopifi.com/md/glossary/disregarded-entity), [Check-the-box election](https://lopifi.com/md/glossary/check-the-box-election), [Public benefit corporation](https://lopifi.com/md/glossary/public-benefit-corporation), [501(c)(3) organization](https://lopifi.com/md/glossary/501-c-3-organization)
- **Previous:** [Set up your back office in a week, Core · Lesson 9](https://lopifi.com/md/learn/set-up-a-startup-back-office)
- **Next:** [Sole proprietorship](https://lopifi.com/md/learn/business-entity-types-explained/sole-proprietorship)
- **The course:** https://lopifi.com/md/learn