Are you looking to start a business? Do you know how you legally want to structure your business? There are three main categories that identify how you should decide to structure your business: number of owners, who’s liable, and who pays taxes. See a breakdown below of the different types of business structures possible for incorporation.

Sole Proprietorship

If you are doing business activities, you are automatically considered a sole proprietorship without having to register as a business. You have complete control over your business.

• 1 person
• Unlimited personal liability
• Self-employment tax, personal tax

Partnership

Partnerships can be structured as a limited partnership (LP) with one general partner having unlimited liability and all other partners having limited liability and control over the business or as a limited liability partnership (LLP) where all owners have limited liability and are not responsible for the actions of the other partners.

• 2 or more people
• Unlimited personal liability unless structured as a limited partnership
• Self-employment tax (except for limited partners), personal tax

Limited Liability Company (LLC)

A combination of partnership and corporation business structures.

• 1 or more people
• Owners are not personally liable
• Self-employment tax, personal tax, corporate tax

Corporations

C Corporation

A legal entity separate from its owners that can raise money.

• 1 or more people
• Owners are not personally liable
• Corporate tax

S Corporation

Avoids double taxation on profits and dividends to shareholders (personal income) by allowing profits & losses to pass directly through to owner’s person income without subjection to corporate taxation.

• 1 or more people, but no more than 100 and all must be U.S. citizens
• Owners are not personally liable
• Personal tax

B Corporation

Similar to a C corporation, but has a public benefit in addition to profitability.

• 1 or more people
• Owners are not personally liable
• Corporate Tax

Nonprofit (501(c)(3))

Conducts work that benefits the public.

• 1 or more people
• Owners are not personally liable
• Tax-exempt, corporate profits can’t be distributed

Next week I will recommend service providers that can help you easily incorporate your business.

– D

Source: United States Small Business Administration