Business Planning
Which Business Structure is Right for You?
Choosing the right legal structure for your business is one of the most important decisions you will make as a business owner. Your choice can affect your personal liability, tax obligations, day-to-day operations, and the steps required to establish and maintain your business. Whether you are starting a business on your own, partnering with others, or building a company for long-term growth, understanding the differences between a sole proprietorship, partnership, limited liability company (LLC), and corporation is an important first step. At Cornerstone Legal, we help business owners understand their options and make informed decisions about the legal structure that best supports their goals.
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| Feature | Sole Proprietorship | LLC (Limited Liability Company) | PLLC (Professional Limited Liability Company) | General Partnership | Limited Partnership | S Corporation | C Corporation |
|---|---|---|---|---|---|---|---|
| Formation | No required filing | Articles of Organization filed with the State of Michigan | Articles of Organization filed with the State of Michigan | Agreement to do business together between two or more parties | Certificate of Limited Partnership filed with the State of Michigan | Articles of Organization (if LLC) or Incorporation (if Corp.) filed with the State of Michigan | Articles of Incorporation filed with the State of Michigan |
| Organizational Documents | None | Operating Agreement | Operating Agreement or Partnership Agreement | Partnership Agreement | Partnership Agreement | Depends on formation | ByLaws & Minutes |
| Ownership | Sole Proprietor | One or more Members | One or more Members or Partners – all must be professionally licensed | One or more Partners | At least one general partner and one limited partner | Depends on formation and organizational documents | One or more Shareholders |
| Management | Sole Proprietor | Member(s) or Manager(s) | Member(s) or Manager(s), or Partners | Typically, all Partners equally | General Partner(s) only | Depends on formation and organizational documents | Directors elected by Shareholders |
| Duration of existence | Until the death of the Sole Proprietor | Perpetual, unless formation documents provide otherwise | Death or withdrawal of all professionally licensed Member(s) or Partner(s) | Death or withdrawal of all Partners, unless agreement provides otherwise | Death or withdrawal of all General Partners, unless agreement provides otherwise | Depends on formation and organizational documents | Perpetual, unless formation documents provide otherwise |
| Liability | Sole Proprietor has unlimited liability | Typically, Member(s) is/are not liable for the debts of the LLC | Dependent on whether PLLC has Member(s) or Partner(s) | Partners have unlimited liability | At least one General Partner has unlimited liability | Depends on formation and ownership | Typically, Shareholders are not liable for the debts of the Corporation |
| Taxation | Not a separate taxable entity | Not a separate taxable entity, unless organized as a Partnership or an S-Corp election is made | Not a separate taxable entity, unless organized as a Partnership or an S-Corp election is made | Separate taxable entity with Partnership tax return | Separate taxable entity with Partnership tax return | Separate taxable entity with Corporate tax return | Separate taxable entity with Corporate tax return |
| Treatment of income/loss | Pass-through to Sole Proprietor | Pass-through to Member(s) | Pass-through to Member(s) or Partner(s) | Pass-through to Partners; taxation paid by Partners | Pass-through to Partners; taxation paid by Partners | Pass-through to Member(s) or Partner(s) | Taxed at Corporate level AND Shareholder level (double taxation) |
| Ongoing formalities | Very few; if a DBA is obtained, renewal every 5 years | Annual statement filed with the State of Michigan | Annual statement filed with the State of Michigan | Annual statement filed with the State of Michigan; annual meetings/minutes | Annual statement filed with the State of Michigan; annual meetings/minutes | Annual statement filed with the State of Michigan; annual meetings/minutes | Annual statement filed with the State of Michigan; annual meetings/minutes |