A sole proprietorship is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. The IRS does not consider the sole proprietorship as a separate business entity. The owner reports all business on Form 1040.
A general partnership refers to an association of persons or an unincorporated company. It is created by agreement, proof of existence and estoppel. It is formed by two or more persons. The owners are all personally liable for any legal actions and debts the company may face. The assets of the business are owned on behalf of the other partners, and they are each personally liable, jointly and severally, for business debts, taxes or tortious liability. Typically, a general partnership is not a taxable entity because its incomes and losses are passed through to the partners. By default, each general partner has an equal right to participate in the management and control of the business.
A limited partnership is a form of partnership that in addition to one or more general partners, there are one or more limited partners. Limited partners have limited liability, meaning that they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority. The charging order (an order obtained from a court or judge by a judgment creditor) limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor and voting or management rights.
A limited liability company, also called an LLC, is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. LLC owners report business profits or losses on their personal income tax returns; the LLC itself is not a separate taxable entity. All LLC owners are protected from personal liability for business debts and claims- a feature known as “limited liability.” In most states, you can create an LLC simply by filing “articles of organization” with your states LLC filing office and paying a filing fee. You should also prepare an LLC operating agreement, which explicitly sates the rig.