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Business Entities
Business Entities
The following will give you a basic understanding of the various business structures. If you require further assistance to determine which business entity is right for your business, contact an attorney and/or accountant.
Sole Proprietorship: Owner assumes all responsibility for the business. Business receipts are taxed as personal income. Owner is responsible for all assets and liabilities.
General Partnership: Allows two or more people to share profits and liabilities.
Limited Partnership: This type of business includes a general partner and one or more limited partners who invest capital into the partnership, but do not take part in the daily operation.
Limited Liability Partnership: General partners are shielded from personal liability for negligent acts committed by the employees or other partners of the partnership.
Limited Liability Company: This business entity combines the limited liability advantage of corporations with the tax status of sole proprietors or partnerships.
Corporation: A state-chartered organization which acts as a separate legal entity. Corporations may elect to file as C-Corporation, S-Corporation, or non-profit when filing with the Internal Revenue Services (IRS).
C-Corporation: It is owned by one or more shareholders whose losses will be limited to the amount of their respective investment. C-Corporations pay the corporate tax rate.
S-Corporation: Taxed as a partnership. Income and deductions flow through the corporation to the shareholders. Shareholders pay the individual tax rate for both state and federal taxes. In addition, the state imposes an additional tax on S-Corporations.
Non-Profit Organization: Tax filing status varies according to the type of non-profit. There are many filing types and this must be determined when filling out the corporation papers. Non-profit status is determined through the IRS.
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