Practice Areas › Business and Corporate Law
Business Entity Comparison Chart
Six ways to own a business, compared side by side, with the California and Delaware rules that change the answer.
How to read it
Most of these answers are defaults.
Each answer states the rule that applies when the owners’ documents are silent. Bylaws, an operating agreement or a partnership agreement can change most of them.
Two things are harder to change. Liability comes from state statute, and federal tax treatment changes only by election or conversion.
An S corporation is not a separate kind of company under state law. It is a corporation, or an LLC, that has elected a federal tax status. Its column shows only where that election changes the answer.
For how to choose among them, see LLC, Corporation or Partnership. For the document that decides most of what this chart leaves open, see What an Operating Agreement Should Decide.
Side by side
Six ways to own a business.
Swipe the table sideways to see every column.
| Feature | C Corporation | S Corporation | Limited Liability Company (LLC) | Limited Partnership (LP) | General Partnership (GP) | Limited Liability Partnership (LLP) |
|---|---|---|---|---|---|---|
| What it is | A company owned by shareholders, formed by filing articles of incorporation (California) or a certificate of incorporation (Delaware). | A corporation or LLC that has elected to be taxed under Subchapter S of the Internal Revenue Code. | A company owned by members, formed by filing articles of organization (California) or a certificate of formation (Delaware). | A partnership with at least one general partner and at least one limited partner, formed by filing a certificate of limited partnership. | Two or more persons carrying on a business together for profit as co-owners. No state filing is needed. | A general partnership that has registered with the state so that its partners are shielded from the partnership’s debts. |
| Owners’ liability for the business’s debts | Shareholders are not personally liable, as a rule. | Same as the corporation or LLC that made the election. | Members are not personally liable, as a rule. | The general partner is personally liable for all of them. A limited partner is not, unless the limited partner takes part in running the business and an outsider is misled into thinking otherwise (see the state table). | Every partner is personally liable for all of them, jointly and severally. Creditors must usually pursue the partnership’s assets first. | Partners are not personally liable, as a rule, including for another partner’s mistakes. Each partner stays liable for that partner’s own conduct. |
| Federal income tax | The corporation pays tax at 21% on its profits. Shareholders pay tax again on dividends. | Generally no entity-level tax. Profits and losses pass through to shareholders, who are taxed on their shares whether or not the money is distributed. | One member: ignored for income tax, and the owner reports everything. Two or more: taxed as a partnership. Either can elect to be taxed as a corporation. | Taxed as a partnership. Profits and losses pass through to the partners. Can elect to be taxed as a corporation. | Taxed as a partnership. Profits and losses pass through to the partners. Can elect to be taxed as a corporation. | Taxed as a partnership. Profits and losses pass through to the partners. Can elect to be taxed as a corporation. |
| Federal return | Form 1120. | Form 1120-S, with a Schedule K-1 to each shareholder. | One member: income is reported on the owner’s return, but the company still files its own payroll tax returns. Two or more: Form 1065, with a Schedule K-1 to each member. | Form 1065, with a Schedule K-1 to each partner. | Form 1065, with a Schedule K-1 to each partner. | Form 1065, with a Schedule K-1 to each partner. |
| Dividing profits and losses | Dividends follow shares, and different classes can carry different rights. Losses stay inside the corporation. | Strictly by shares owned, day by day. A shareholder can deduct losses only up to what the shareholder has invested plus what the company owes that shareholder. The rest carries forward. | As the operating agreement provides. An allocation need not track ownership, but federal rules disregard one unless the money actually follows the paperwork. | As the partnership agreement provides, subject to the same federal rules. | As the partnership agreement provides. With no agreement, profits are shared equally and losses follow profits. | As the partnership agreement provides. With no agreement, profits are shared equally and losses follow profits. |
| Who can own, and how many | Any person or entity, in any number. | No more than 100 shareholders, and a family can count as one. Only US citizens and residents, estates, certain trusts and certain tax-exempt organizations. No partnerships, corporations or nonresident aliens. | One or more members, of any kind. | At least one general partner and at least one limited partner, of any kind. | Two or more partners, of any kind. | Two or more partners. California limits LLPs to certain licensed professions (see the state table). |
| Classes of ownership | Several classes and series are allowed, such as common and preferred stock. | One class of stock. Differences in voting rights alone are allowed. | Any structure the operating agreement creates. | Any structure the partnership agreement creates. | Any structure the partnership agreement creates. | Any structure the partnership agreement creates. |
| Who manages | A board of directors elected by the shareholders. The board appoints officers to run the business day to day. | Same as the corporation or LLC that made the election. | The members, unless the company is set up to be run by managers. | The general partner. Limited partners have no management role by default. | Every partner has an equal say, and any partner can bind the partnership in the ordinary course. Ordinary decisions take a majority; extraordinary ones take every partner. | Same as a general partnership. |
| Governing documents | Articles or certificate of incorporation, and bylaws. A shareholders’ agreement is optional. | The corporation’s documents, plus IRS Form 2553, which every shareholder must consent to. | Articles or certificate, plus an operating agreement. Both states allow the agreement to be oral. It should not be. | Certificate of limited partnership, plus a partnership agreement. | A partnership agreement, which can be oral or implied from conduct. | A partnership agreement, plus the state registration. |
| Transferring a stake | Shares transfer freely unless the documents or securities laws restrict them. | Same, but a transfer to an owner who is not eligible ends the election. | By default, a buyer receives only the right to distributions. Becoming a member takes the consent of all members. | By default, a buyer receives only the right to distributions. Becoming a partner takes the consent of all partners. | By default, a buyer receives only the right to distributions. Becoming a partner takes the consent of all partners. | By default, a buyer receives only the right to distributions. Becoming a partner takes the consent of all partners. |
| When an owner dies or leaves | The corporation continues. The shares pass to the estate or the buyer. | The corporation continues. An estate is an eligible owner, but a later transfer to one who is not eligible ends the election. | The company continues in both states. It dissolves only if no member is left and none is admitted within 90 days. | A limited partner leaving has no effect. If the last general partner leaves, the partnership dissolves unless a new one is admitted within 90 days. | A partner can leave at any time, and the partnership usually buys out that partner’s interest. Whether the partnership itself ends depends on state law (see the state table). | Same as a general partnership. |
| Gain exclusion on qualified small business stock | Available for stock the company issues directly to the owner while it is a C corporation. For stock acquired after July 4, 2025, the company’s gross assets must be $75 million or less, and the owner can exclude 50%, 75% or 100% of the gain after three, four or five years. For older stock the ceiling is $50 million and the exclusion is 100%, but only after five years. | Not available. | Not available. After converting to a C corporation, stock issued from then on can qualify, but not for gain built up before the conversion. | Not available. | Not available. | Not available. |
Federal rules as of September 2026. The exclusion is capped at the greater of two numbers: a dollar cap, or ten times what the owner paid for the stock. The dollar cap is $15 million for stock acquired after July 4, 2025, and $10 million for older stock. Both dollar figures rise with inflation from 2027. Whole industries are excluded, including law, health, accounting, engineering, consulting and financial services.
California and Delaware
Where the two states part ways.
Swipe the table sideways to see every column.
| Feature | California | Delaware |
|---|---|---|
| Fee to form | Corporation $100. LLC, LP and LLP $70. A general partnership may file an optional statement, also $70. | Corporation from $109, depending on authorized shares. LLC $110. LP $200. LLP $300 for each partner. A general partnership’s optional statement is $200. |
| Minimum annual tax | $800 a year for corporations, S corporations, LLCs, LPs and LLPs, even in a year with no profit. A new corporation skips it for the first year but still pays tax on any first-year profit. An LLC, LP or LLP whose first tax year begins in 2027, 2028 or 2029 pays $400 for that year. General partnerships pay none. | Corporations pay a franchise tax plus a $50 annual report fee, both due March 1. The tax is figured two ways and the company pays the lower one, with a floor of $175 under the first method or $400 under the second. The ceiling is $200,000, or $250,000 for the largest filers. A corporation owing $5,000 or more pays in installments across the year, starting June 1, with the balance due March 1. LLCs and LPs pay $400 a year, due June 1. An LLP pays $300 for each partner, up to $180,000. A general partnership pays $400 only if it has filed a statement with the state. |
| Tax or fee based on income | Corporations 8.84% of California net income. S corporations 1.5%. An LLC also pays a fee on its California sales, from $900 at $250,000 to $11,790 at $5 million or more — on sales, not profit, and on top of the $800. Owners of a pass-through then pay California income tax on their shares, at rates reaching 13.3%. A partnership, multi-member LLC or S corporation can elect to pay 9.3% of the profit at the entity level, and the owners then credit it against their own California tax. That does not replace the owner’s tax; it makes more of it deductible on the federal return. The election runs through 2030, and a single-member LLC cannot make it. | Corporations 8.7%, but only on income from business done in Delaware. A company formed in Delaware that operates elsewhere usually owes none. Delaware does not tax LLC or partnership income at the entity level. |
| Periodic report | Statement of Information: corporations every year ($25), LLCs every two years ($20). LPs and LLPs file none with the Secretary of State. | Corporations file an annual franchise tax report by March 1. LLPs file an annual report by June 1. LLCs and LPs file no report; their tax is due June 1. |
| Minimum number of directors | Three, unless the corporation has only one or two shareholders. A sole shareholder may have one or two directors. Two shareholders may have two. | One. |
| Annual shareholders’ meeting | Required. A shareholder can ask the superior court to order one once a date the bylaws set has passed by 60 days, or, if the bylaws set no date, after 15 months with no meeting. | Required, unless directors are elected by written consent instead. A shareholder or director can ask the Court of Chancery to order one 30 days after a date the bylaws set, or after 13 months if the bylaws set no date. |
| Licensed work | An LLC cannot practice a licensed profession here, such as law, medicine or accountancy. Some licensed trades can use an LLC, including contractors, where the licensing law says so. Professionals use a professional corporation, or an LLP if the profession is eligible. | Delaware has a professional corporation but no professional LLC. An ordinary LLC can provide professional services, because Delaware lets an LLC carry on any lawful business, but the licensing board for the profession decides whether that is allowed. |
| Who may form an LLP | Only firms practicing law, public accountancy, architecture, engineering or land surveying, and certain related firms. The shield depends on carrying insurance or other security for claims. The floor is $1 million for a firm with five or fewer licensed partners, or $2 million for engineering and land surveying, and it rises with each additional partner. The registration must also be renewed every year. | Any partnership. |
| A limited partner who helps run the business | Can become personally liable, but only to someone who dealt with the partnership knowing of that role and reasonably believing the limited partner was a general partner. Advising the general partner, voting and sitting on a committee do not count. | Liable only to someone who dealt with the partnership and reasonably believed, from how the limited partner behaved, that the limited partner was a general partner. Delaware does not require that person to have known of the role. A long list of activities, including advising the general partner and voting, does not count. |
| An owner’s personal creditors | A court can give the creditor a lien on the owner’s distributions, and can also order the interest sold. For a partnership interest it can order the sale at any time. For an LLC interest it must first find that distributions will not pay the judgment within a reasonable time. | For LLC, LP and general partnership interests, a lien on distributions is the only remedy, including for a company with a single member. The interest cannot be ordered sold. |
| A partner leaves an at-will general partnership | It dissolves if at least half of the partners want to wind it up. A partner who quits counts toward that half, so in a two-partner firm one partner leaving is enough. | A partner’s notice of an express will to withdraw dissolves it. |
| Series LLCs | Cannot be formed here. Each series of an out-of-state series LLC that is registered or doing business here pays its own $800 tax and its own fee. Only the company itself registers with the Secretary of State. | Allowed. Each series can shield its assets from the debts of the others if the statute’s requirements are met. |
| Where disputes are heard | Superior court, with a jury for most damages claims. A claim asking the court to order something rather than pay money is decided by a judge. There is no statewide business court, though several counties assign complex cases to one judge. | Disputes about how the company is run — duties to the company, access to records, stopping a deal — go to the Court of Chancery, which decides without a jury. Disputes only about money go to Superior Court, which has juries and a separate division for commercial cases worth $1 million or more. |
Amounts as of September 2026. Both states change fees and thresholds. Confirm current amounts with the Secretary of State and Franchise Tax Board, or the Delaware Division of Corporations, before relying on them.
Delaware does not replace California
A Delaware company doing business in California must register here. It then pays California’s $800 minimum tax and California tax on its California income, and files in both states. California counts a company as doing business here if it does business here for profit at all, or if it is organized or headquartered here. The threshold tests catch the rest: California sales, property or payroll above a yearly figure, or a quarter of the company’s total. For 2025 those thresholds were $757,070 in sales and $75,707 in property or payroll; the 2026 figures are usually published late in the year. Staying under them does not mean the company is clear. A corporation that does business here without registering can be fined $20 a day for each day it did so deliberately, and cannot sue on that business until it registers and pays a $250 penalty. An unregistered LLC cannot sue here either, though it can still defend itself, and registering cures it.
Federal ownership reports — changed in 2026
Companies formed in the United States no longer report their owners to the Treasury’s Financial Crimes Enforcement Network. A rule effective August 14, 2026 made that permanent, and Treasury has said it will delete the information it already holds on US individuals. The requirement now reaches only companies formed abroad that register to do business here, and even those report only their non-US owners. This was done by regulation rather than by Congress, so a later administration could change it back. Some states run their own owner registers.
Traps
Three mistakes the chart does not show.
An S election ends the day an ineligible owner arrives
One share sold or given to a partnership, a corporation, a nonresident alien or the wrong kind of trust ends the election that day. The company is then taxed as a C corporation.
It generally cannot elect again for five years without IRS consent. Relief exists for a mistake, and for some common ones the company can now fix the problem itself. A shareholders’ agreement that blocks those transfers is the usual protection.
A partnership can form without anyone deciding to form one
Two people who run a business together for profit as co-owners have formed a general partnership, whether or not they meant to. Each can be personally liable for its debts, and each can bind the other.
Limited liability protects the owner, not the company
The shield keeps the company’s creditors away from the owner. Keeping an owner’s personal creditors away from the company is a separate rule.
In California, a court can order an owner’s LLC or partnership interest sold to pay a personal judgment. Delaware does not allow that.
This page is general information, not legal or tax advice. How it applies depends on facts this page cannot know, and the rules change. Reading it creates no attorney-client relationship. Please see our Attorney Advertising, Legal Notices & Disclaimers.
Forming a company in California or Delaware?
The chart shows the starting rules. The documents decide how much of it still applies.
Contact the firm