What Are The Types of Companies

There is a wealth of decisions that go into forming a business in the United States. Arguably one of the most crucial in relation to taxation is the legal structure of your new business.

In addition to taxes, this decision plays a role in how much paperwork you end up dealing with and your ow n personal liability in the company. It even factors into how you can raise money on your company’s behalf.

The most well-known legal structures for a business include sole proprietorship, partnership, corporation, S corporation, and LLC. Limited liability partnership (LLP) is a newer development in the business world.

Fortunately, you do have the option of kicking off your business as a sole proprietorship and reorganizing your structure if you decide to take on partners. So, it isn’t set in stone.

Just make sure you notify the IRS if you make changes in the structure of your business.

Whether this is your first business venture, or you have rode this rodeo before, I highly recommend reaching out to an experienced business lawyer such as myself at sam@mollaeilaw.com. I can help look at your situation and make sure you are selecting the best structure for your situation.

Here is the small outline for better help:

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1. Sole Proprietorship
2. General Partnership
3. Limited Liability Company (LLC)
4. Limited Partnership
5. Limited Liability Partnership (LLP)
6. C-Corporation
7. S-Corporation
8. Nonprofit Corporation

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Sole Proprietorship

What is a sole proprietorship?

The most basic legal structure for a business is a sole proprietorship. This is a single individual who owns and operates a business alone.

The issue with a sole proprietor is there is no line between your assets and the assets of your business. So, if your business runs into a legal issue, your personal assets could be at risk

 

General Partnership

What is a General Partnership?

In a general partnership, two (or more) people share all profits, losses, assets, and legal liabilities associated with a business. Your personal assets are at risk under a general partnership.

 

Limited Liability Company (LLC)

What is an LLC?

An LLC is what some consider the perfect blend of a partnership and a corporation. It provides liability protection that a simple partnership does not.

An LLC is also appealing because it is a big easier to manage than a corporation.

 

Limited Partnership

What is a Limited Partnership?

A limited partnership is when two (or more) people go into business, but the partners are only liable for money they invest into the business.

 

Limited Liability Partnership (LLP)

What is an LLP?

Limited liability partnership offers protection from liability issues that a traditional partnership does not. If your partner is being sued, for example, you are not liable for that lawsuit.

 

Difference Between Limited Partnership and General Partnership

The key differences between limited partnership and general partnership include the overall role the partner plays in the business as well as the liability.

As a limited partnership, you may not be as involved in the everyday management of the company. A general partner would be completely involved.

A general partner is also fully liable for the company and their partner. A limited partner is not.

 

C-Corporation

What is a C Corp?

There is a massive difference between corporations and other business structures. A corporation is an independent legal entity that is separate from the individuals who own and manage the company.

Basically, a corporation is viewed as a legal person. This, unfortunately, creates a double taxation issue as the IRS will tax both you and the business because it seems them as two different people.

This, however, also offers a lot of liability protection as people would sue the business instead of suing you – the owner.

 

S-Corporation

What is an S Corp?

An S Corporation is basically a lite version of a traditional C Corporation. By default, your business is recognized as a C Corp if you decide to incorporation your business.

You can elect to structure as an S Corp by filing a IRS Form 2553.

 

Difference Between an S Corp and a C Corp

The key difference between S Corp and C Corp is the taxation. The IRS will tax your C Corporation at a corporate level.

This means they will tax you at a corporate level and again on your personal income taxes. Essentially forcing you to deal with double taxation.

As an S Corporation, your income and losses are divided among your shareholders and pass through their personal income. Therefore, S Corps are referred to as “pass through” businesses.

So, your S Corp shareholders would be taxed at an individual level and you would not have to deal with a corporate level tax.

Contact me at sam@mollaeilaw.com if you still find the differences between S Corp and C Corp to be confusing, I can help you understand it better.

 

Nonprofit Corporation

What is a nonprofit corporation?

Just as the name suggests, a nonprofit corporation is a non-business entity committed to a certain social cause.

 

What To Do Next

As you can see, there is a lot to consider as you decide what structure you want to form your business under. Each business structure comes with unique taxation consequences, so it is important to choose wisely.

Don’t make the decision yourself, contact me at sam@mollaeilaw.com and I can lend my expertise to you.