When setting up a new business entity to run your business from, it’s important to consult with your CPA and/or attorney to make sure that you are choosing the right option. Most businesses today are either a corporation (AKA C-Corp: you will see “INC” in the entity name) or a Limited Liability Company (AKA LLC: will see an “LLC” in the entity name).
Business entities are normally registered in the state that you are going to be doing business in. Entities can be registered to do business in more than one state too. Here we have detailed each entity type and the specifics of what they are.
What is a Corporation?
- A corporation is an independent legal entity that exists separately from the people who own, control and manage it.
- It does not dissolve when its owners (or shareholders) die because it is considered a separate “person.”
- A corporation can enter into contracts, pay taxes, transact business, etc.
- The owners have limited liability.
- Contact an attorney or an accountant to determine if this structure works for you.
What is an S-Corp?
- An S-Corp is NOT a business entity type (this is a very common misconception).
- An S-Corp is a tax designation with the IRS.
- The owner of an INC or LLC can register as an S-Corp if they choose to.
- S-Corp status helps corporations avoid double taxation on income.
- S-Corp status allows for a pass-through of the income tax liability from the business to the individual owner(s).
- Contact an accountant to determine if this structure works for you.
- An accountant will often file the IRS S-Corp application for you.
What is a Limited Liability Company?
- A limited liability company (LLC) is similar to a corporation, but with slight differences.
- Like a corporation, it offers limited personal liability.
- An LLC is not required to hold regular stockholder or management meetings, and there are no requirements to comply with other corporate formalities.
- Contact an attorney or an accountant to determine if this structure works for you.
What is a Partnership?
- A partnership exists when two or more persons co-own a business and share in the profits and losses of the business.
- Each of the co-owners or partners contribute something, usually money or real property, to the business endeavor.
What is a General Partnership?
- A partnership where the rights and responsibilities are divided equally among the partners.
- The partners are referred to as general partners because each partner can act on behalf of all the partners, and each partner is responsible for the partnership’s debts and obligations.
- Contact an attorney or an accountant to obtain more information.
What is a Limited Partnership?
- A partnership composed of both general and limited partners.
- This type of partnership allows each partner to determine and/or limit his or her personal liability.
- Unlike general partners, limited partners are not responsible for the partnership’s actions, debts and obligations.
- General partners have the right to manage the business. Limited partners do not.
- Both general and limited partners benefit from the business’s profits.
- Contact an attorney or an accountant to determine if this structure works for you.
What is a Sole Proprietorship?
- A sole proprietorship is the simplest and most common structure chosen to start a business.
- It is an unincorporated business owned and operated by one individual with no distinction between the business and the owner.
- Sole proprietorships, when not operating under the owner’s legal name, must register a fictitious name with their local city/county/state (whatever might be required for your location).
- Contact an attorney or an accountant to determine if this structure works for you.