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Choosing a Business Structure.
A business structure determines business operations, liability, & tax implications.
Sole Proprietorship: Owner and business are one and the same. All business assets, liabilities, and obligations are directly connected to the owner's personal assets and liabilities.
Partnership: A business entity constituted by two or more partners, with shared assets, liabilities, and control.
- Limited Partnership: A general partner maintains unlimited liability and controls day-to-day operations, while limited partners have limited personal liability and control.
- Limited Liability Partnership: Copartners share control and management of responsibilities, while providing limited liability to every partner and protecting each partner from the actions and debts of the copartner(s).
Limited Liability Company (LLC): A pass-through entitiy providing self-employed business owners with limited liability. Required to pay self-employment tax in addition to personal or corporate taxes.
- Single-Member LLC: Owned by a single member and treated as a "disregarded entity" by IRS for tax purposes.
- Multi-Member LLC: Owned by two or more members sharing business tax responsibilities.
- Member-Managed LLC: Members participate in day-to-day operations and share equal responsibility, unless otherwise dictated in the operating agreement.
- Manager-Managed LLC: Owners appoint designated members to oversee the day-to-day operations of the business.
Corporations: Provide limited liability and protection to its owners.
- C Corp: Business entity is separate from its owners (shareholders), liable for its debts, required to pay federal tax on its profits, and taxed as personal income when dividends are paid to shareholders.
- S Corp: Business entity that avoids double taxation by allowing profits and losses to "pass through" to owners and shareholders' personal tax returns.
- Benefit Corporation: A for-profit organization providing a beneficial public purpose to society or the environment. Required to pay corporate tax.
- Closed Corporation: A private company run by a limited number of shareholders and not publicly traded.
- Nonprofit Corporation: Business entities engaged in charity, education, or religious work to benefit the public, that may file with the IRS for tax-exempt status.
Cooperative: Owned and operated by its members, for the benefit of their services, with the distribution of profits amongst the members.
