Decoding 5 Possible Business Entity Types In the United States

Income Tax Return Concord

To get the most out of your business, it is important to choose the right business structure. Many business owners are confused between whether they should incorporate business online or not. They aren’t sure what their possible business entity types are, what incorporation is best for their business, or even what are the basic requirements to start a small company.

The business structure you choose for your business helps maximize your chances of financial and operational success. It is significant to find a business entity type best suited for your business. There are five possible business structures that a company may choose in the United States. These include a sole proprietorship, limited liability companies LLC, S corporation, partnerships, and a corporation; let’s describe all of your options one by one:

5 possible business structures in the United States

Sole Proprietorship

This is by far the simplest structure of business in the United States. This form of business is simple and straightforward, and usually involves only one individual who owns and manage the business. If you have it in mind to work alone, this business entity type may be the way to go.

The tax aspects of a sole proprietorship are interesting because owner remains personally liable for the income and expenses, and lawsuit filed against the business. This business structure is especially fantastic for businesses those have a low risk of liability. It is easy to form and operate, startup costs are very low, no state filing required, and the owner has complete control over the business. In addition, owner reports business profit and loss on their personal tax return, and personally liable for everything company does.

Limited Liability Companies (LLC)

An LLC is a hybrid business structure designed to provide the limited liability protection, tax efficiencies and operational flexibility of a partnership. Profits and losses move across to the owners and incorporated on their personal tax returns. It is basically an independent legal structure separate from its owners and helps separate your personal assets from your business debts.  It is comparatively difficult to start a limited liability company than a corporation and requires a lot of hard work. If you want to incorporate business online, an LLC defiantly needs a lawyer or a certified public account for the better understanding of the process. Not required to hold an annual meeting, no limit to the number of owners and governed by operating agreements, these are some of the many benefits of limited liability companies.

S Corporation

S corporation provides with some attractive tax benefits and liability protection of a corporation. With this form of business, income and expenditures are passed through the shareholders and included on their individual tax returns. It is also an independent legal and tax business entity separate from their owners. S corporations can have up to 100 shareholders but all must be U.S citizen. More shareholders mean the company can attract more investors and thus attract more capital through the sale of shares of stock.

Partnerships

Depending on the partner responsibility and nature of the arrangement for the business, there can be several types of partnerships. It is the single business that has two or more owners. All these partners or owners contribute to the business either with labor, money, skill, property, or similar.

Generally, there are two types of partnerships: general partnerships and limited partnerships. In a general partnership, partners equally manage the company and responsible for company’s debts and other obligations. Whereas, a limited partnership is the combination of both general and limited partners.  The general partners manage and operate the business, while the limited partners work as investors only.

Partnerships will require registration but it’s very easy to set up. Each state of the USA has different rules and regulations for forming a partnership, but in most of the state, it is a matter of paying a small fee and filling out a form.

Corporation

 

The corporation business entity type is more expensive and complex than most other business types. It is suggested for larger recognized companies with a large number of employees. A corporation is separate from its owners and is an independent legal identity. There are several benefits of corporation structure but the biggest benefit is the liability protection owner receives. Since the owner is not responsible for corporation’s debts, you are not putting your personal assets at risk.

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