Legal Structure for Starting a Business

When starting a business, selecting the type of legal structure is one of the first decisions to be made. It is important to research each business type in order to choose the best option for your business. The different types of business structures are:

Sole Proprietor

An individual who owns a business by himself or herself.

 

Partnership

Two or more individuals joined together in a business or venture. Each   partner contributes to the business and is expected to share all profits and   losses that the business may incur.

 

Corporation

Corporations are established by shareholders who invest money or property for   the corporation’s capital stock. Businesses that have a corporation   designation attached to a business limits the personal liabilities of its   members. There are two types of corporations, C corporation and S   corporation.

 

C Corporation

This type of corporation is viewed as a taxpaying entity in and   of itself. The corporation pays taxes and distributes profits to   shareholders. Profits are taxed to the corporation when earned and also taxed   to the shareholders when distributed as dividends.

 

S Corporation

This type of corporation is viewed differently than a C   corporation in regards to profits and losses. An S corporation does not pay   taxes on profits when earned by the corporation, but rather passes the profit   or loss onto the shareholders to be claimed on their individual income tax   returns.

 

Limited Liability Company ( LLC)

A limited liability company operates similarly to S corporations and C   corporations in regards to liabilities. Having the LLC designation limits the   amount of personal liability and debts of its members in regards to the  actions of the LLC.

 

Single Member LLC

A Single Member LLC (SMLLC) is simply a limited liability company that only   has one member. A SMLLC has the option to be either a corporation or a   disregarded entity. If the SMLLC elects to be treated as a corporation then   all income and expenses would be combined with the other income and expenses   of the corporation and reported on the tax return. If the SMLLC elects to be   treated as a disregarded entity then all income and expenses would be   included on the member’s individual income tax return.