Considering the Distribution of Profits and Losses When Choosing a Business Type

Sole Proprietorship

The sole proprietor receives all the profits from the business, and bears all the losses, which may exceed the proprietor’s investment in the business.


In the general partnership, the limited liability partnership, the limited liability limited partnership and the limited partnership, profits and losses are passed through to the partners as specified in the partnership agreement. If left unspecified, profits and losses are shared equally among the partners.


In a C corporation, profits and losses belong to the corporation. Profits may be distributed to shareholders in the form of dividends, or they may be reinvested or retained (within limits) by the corporation. Except upon sale of stock or liquidation of the corporation, losses by the corporation are not claimed by individual shareholders. In an S corporation, profits and losses flow through to shareholders in proportion to their shareholdings.

Limited Liability Company

Profits and losses of a limited liability company generally are allocated among the members in proportion to the value of their contributions. The articles of organization or the board of governors, under circumstances specified in the statute, may provide for a different allocation.

CREDITS: This is an excerpt from A Guide to Starting a Business in Minnesota, provided by the Minnesota Department of Employment and Economic Development, Small Business Assistance Office, Twenty-eighth Edition, January 2010, written by Charles A. Schaffer, Madeline Harris, and Mark Simmer. Copies are available without charge from the Minnesota Department of Employment and Economic Development, Small Business Assistance Office.

This is also part of a series of articles on How to Pick the Right Business Entity Type. These articles help you select the right business type for your circumstances.