The five main types of business structures

Sole Proprietorship – This type of business is owned by a single individual that earns all the profits and is responsible for all the losses. A sole proprietorship is the simplest of all business structures, and therefore the easiest to set up. However, it is also the riskiest because your personal assets are not protected if a lawsuit is brought against your company. There are also no tax benefits for sole proprietorship owners. While this type of business may be suitable for a small home business, most business owners will find that a sole proprietorship is too risky for their company.

General Partnership – An ownership agreement where more than one person is involved. All parties share equally in the profits and losses of the business, as well as full liability for debts. The general partners also share equally in any personal liability. A general partnership can be formed with or without a formal written agreement and there is no filing requirement with your state. One thing to keep in mind with a partnership is that partners may not always have the same goals or direction for the business, as well as different ideas on how to spend the business’ money.

Limited Partnership – A business partnership where the partners are only responsible for their own investment. Typically, limited partners are seen as "silent partners" who have invested in a business but have no management authority. Since the general partners share the personal liability for the business, the limited partners do no share in this risk. One of the disadvantages of a limited partnership is that there is several state filing requirements..

Limited Liability Company (LLC) – A flexible business structure that allows for the simplicity of a partnership with personal liability protection for the owners. While an LLC doesn’t have to follow the rigid requirements of a corporation, most states do require a formal operating agreement as well as the filing of an annual report.

Corporation – A business entity which has certain rights and privileges (such as owning assets, purchasing property, etc.) similar to an individual. A corporation has a limited liability of its debts and the shareholders’ (owners’) assets are not at risk. Corporations must follow a specific management structure and formal policies in order to remain a corporation. There are annual filing fees for a corporation as well as annual paperwork requirements from the state.

The choice of a business structure is an important one and shouldn’t be taken lightly. For more information, please take a look at the IRS’ website.

Subchapter S Corporation
A Subchapter S Corporation is a general corporation that has elected a special tax status with the IRS after the corporation has been formed. Subchapter S corporations are most appropriate for small business owners and entrepreneurs who prefer to be taxed as if they were still sole proprietors or partners. When a general corporation makes a profit, it pays a federal corporate income tax on the profit. If the company also declares a dividend, the stockholders must report the dividend as personal income and pay more taxes. S Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the stockholders. For many small businesses, the S Corporation offers the best of both worlds, combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure.

Limited Liability Company (LLC)
The LLC is not a corporation, but it offers many of the same advantages. Many small business owners and entrepreneurs prefer LLC’s because they combine the limited liability protection of a corporation with the "pass through"" taxation of a sole proprietorship or partnership. LLC’s have additional advantages over corporations:

• LLC’s allow greater flexibility in management and business organization.

• LLC’s do not have the ownership restrictions of S Corporations, making them ideal business structures for foreign investors.

• LLC’s accomplish these aims without the IRS’ restrictions of an S Corporation.
  LLC’s are now available in all 50 states and Washington, D.C. Guidelines for corporations and LLCs are set by each individual state, and vary by state.

With over 100 years of experience, The Company Corporation and its affiliated companies provide expert incorporation services to small businesses and entrepreneurs nationwide. In addition to filing corporations and limited liability companies in all 50 states and the District of Columbia, The Company Corporation offers a wide range of products and services that help businesses preserve and protect their corporate status. For more information on small business incorporation services, visit our Web site at www.corporate.com .

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