1. Sole Proprietorships
2. Partnerships
- 2.1. General Partnerships
- 2.2. Limited Partnerships
- 2.3. Limited Liability Partnerships (LLPs)
3. Limited Liability Company (LLC)
4. Corporations
- 4.1. C Corporations
- 4.2. S Corporations
1. Sole Proprietorships
A sole proprietorship is a business operated by one individual; the business is considered part of the individual, not a separate entity. The business profits and losses are included on the individual's personal tax return, and the individual retains personal liability for the business debts and lawsuits.
2. Corporations
A corporation is an entity which is separate from its owners. The corporation is formed under the laws of the state in which it is operating, with Articles of Incorporation.
3. Subchapter-S Corporations (S-Corporations)
A subchapter-s corporation (or s-corp) is a corporation which has the benefits of limited liability of a corporation but which is taxed as a partnership, with the income or losses flowing through to the individual shareholders.
4. Limited Liability Companies
A limited liability company (LLC) is not a corporation, but it has the liability protection of a corporation and other benefits, like ease of formation. You can have a single-member LLC which pays taxes like a sole proprietorship, or a multiple-member LLC which pays taxes like a partnership. You can even have an LLC that's taxed like a corporation. There are few drawbacks to forming an LLC.
You may also want to look into the , a new type of LLC which is available in a few states. In a Series LLC, you can have a parent LLC and many sub-LLC's, each with separate liability.
5. Professional Corporations (PCs)
A professional corporation is a specific type of corporation for professionals, such as attorneys, doctors, architects, and accountants. In some states, these professionals can form a corporation, but with the distinction that each professional is still liable for his or her own wrongful professional actions.
6. Partnerships
A partnership is a business entity with individuals who share the risk and benefits of business. A partnership may include general partners, who bear the liability for partnership debts and for actions of the partnership. It may also include limited partners who are merely investors and who do not share in the day-to-day operations of the business and who do not share in liability.
7. General Partnerships
A general partnership is a partnership which includes only general partners. Under this structure, all partners in the day-to-day operations of the partnership and all partners bear personal responsibility for debts and liabilities of the partnership.
8. Limited Partnerships
If a partnership has both general partners and limited partners, it is sometimes termed a limited partnership. A limited partnership is an entity distinct from its partners. As with a partnership, the general partners deal with the day-to-day operations of the partnership and they have liability for debts and for actions of the partners. Limited partners do not participate in day-to-day operations of the partnership and they bear no liability for debts or actions of the partnership.
9. Limited Liability Partnerships (LLPs)
Limited Liability Partnerships (LLPs) are formed with general partners, but all general partners are shielded from liability for the acts of other partners or employees. The LLP is similar to a limited liability company (LLC), but the LLP operates under partnership rules.
10. Limited Liability Companies (LLCs)
A limited liability company (LLC) operates like a partnership, but it has members instead of partners, and an operating agreement instead of a partnership agreement. The advantage to an LLC is that the liability of members is limited to their investment. Most states allow a single-member LLC to form. A single-member LLC is taxed as a sole proprietorship, while a multiple-member LLC is taxed as a partnership.
Trusts are usually formed upon the death of an individual and are designed to provide continuity of the investments and business activities of the deceased individual. We will not discuss trusts further.
Nonprofits are corporations formed for a charitable, civic, or artistic purpose. Nonprofits are generally exempt from federal and state taxation on their income, and so they are often called exempt organizations. Nonprofits have substantial responsibilities for reporting their activities, income, and assets to ensure that they are in compliance with federal and state laws governing charities.
