DC Business Entity Types: These options offer different types of support.
Limited Liability Company (LLC)
An LLC is a hybrid business that draws advantageous characteristics from both corporations and partnerships.
Advantages
- Profits and losses pass through the company to its owners for tax purposes
- Personal assets are protected from business liability
- No limitation on the number or nature of owners
- Simpler to operate than a corporation
- Not subject to corporate formalities
- Owners may participate in management of the business
Disadvantages
- Legal assistance is needed to properly set up and structure an LLC
- Professionals—such as lawyers, architects, accountants, engineers and doctors, etc.—shall register Professional LLC (PLLC).
C (General) For-Profit Corporation
A business formed by law as a separate legal entity from its owners (stockholders and shareholders).
Advantages
- Has a lifespan independent from its owners (stockholders)
- Fringe benefits costs are tax-deductible
- Personal assets are protected from business liability
- Ownership can be transferred through the sale of stock
- Easy to raise operating capital through the sale of stock
- Ownership can change without affecting its day-to-day management
Disadvantages
- Incorporating involves considerable start-up expenses
- Subject to more district and federal legislation
- Corporate earnings subject to double taxation
- Many legal formalities exist when filing and trying to maintain corporate status
- Activities are limited
A business similar to a General Corporation, with the exception of specific IRS requirements.
Advantages
- Already exists as a corporation
- Corporate earnings avoid double-taxation
Disadvantages
- Difficult to qualify for IRS requirements
An organization that has no owners, gives no income (except salaries/expenses) to members, directors or officers and must have a Board of Directors.
Advantages
- Tax Exemption
- Business Operation Flexibility
Disadvantages
- Merger limitations
A business similar to a general partnership, however, one invests assets into the business at their own risk and is limited to the amount of capital invested. The investor is not involved in management and does not share in the liability for debts or losses.
Advantages
- Relatively easy to establish
- Partners share in start-up expenses
- Financing is easier to obtain than for a sole proprietorship
- Partners share all profits and reap all benefits of ownership
- Limited Partnership partners’ assets are not at risk from creditors
Disadvantages
- More expensive to set up initially, due to the requirement for a written agreement
- Operating (general) partner has unlimited liability for business expenses
- Loss of one partner may dissolve the business
- Partnership may be difficult to end
Limited Liability Partnership (LLP)
A business where partners are given the same limited liability protection as professional corporations.
Advantages
- Tax advantage of flow-through tax treatment for LLP partners
- Not subject to the numerous limitations regarding ownership, capital structure and division of profits
- Simple and familiar for an existing partnership to elect to become an LLP
Disadvantages
- A sole owner cannot set up an LLP as a partnership, an LLP must have at least two partners to exist
Cooperative Association (General Cooperative Association or Limited Cooperative Association)
A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners.
Advantages
- Less Taxation.
- Funding Opportunities
- Reduce Costs and Improve Products and Services
- Perpetual Existence
- Democratic Organization
Disadvantages
- Obtaining Capital through Investors
- Lack of Membership and Participation
Business Statutory Trust
New type of business entity, which is the entity of choice for several categories of business transactions – namely, organization of mutual funds, asset securitization, and tax-advantaged real estate transactions.
Sole Proprietorship
A business that is owned by a single individual.
Advantages
- Minimal legal restrictions or requirements
- Not required to pay unemployment taxes
- Easiest and least expensive to set up
Disadvantages
- No unemployment benefits if the business fails
- Personally liable for all business transactions
General Partnership
Advantages
- The partners share workload and responsibilities
- The partners share all profits and reap all benefits of ownership
Disadvantages
- Each partner is bound by the actions of the other partner
- Loss of one partner may dissolve the business
What’s Next
Need additional research? Further resources are available to read at DC’s Department of Consumer and Regulatory Affairs (DCRA) as well as US Small Business Administration (SBA), the DC Chamber of Commerce and many other organizations designed to get you started.