When you are planning your business, you will need to consider the ownership structure. A business structure is how you intend on operating your business. You will need to determine if it is a sole proprietorship, LLC, Corporation, or Partnership. Listed is a brief description of each structure.
- Sole Proprietorship: is a business that is owned and controlled by an individual or a limited liability company (LLC). There are no partners and the legal the individual is responsible for total control and liabilities.
- General Partnership: is when two or more persons join in a business for the purpose of joint profit. General Partners assume unlimited joint liability. General partners may be held liable for the other partners actions.
- Limited Partnership: is a form of partnership which some of the partners contribute financially and are responsible only to the extent of the amount of money invested.
- S Corporation: is a corporation that chooses to pass corporate income, losses, credits, and deductions through to shareholders for federal tax purposes. Requires a board of directors.
- C Corporation: is legal structure for a corporation in which the owners or shareholders are taxed separately from the entity. C-Corp’s are also subject to corporate income tax.
- Limited Liability Company (LLC): offers limited liability and pass-through taxation. The LLC legally exists from its owner(s). therefore, the owner(s) cannot typically be held responsible for the business debts and liabilities. The LLC can have one or more members; depending of the state it is located.
Below is a comparison chart of the different business structures. If you are undecided you may want to consult a tax professional and a lawyer to determine the appropriate structure for your business. You will need to determine the structure of your business before you apply for your EIN number (Employee Identification Number) with the IRS.
Business Structure Comparison©
| Business Type | Liability | Management & Control | Ease of Set Up | Taxation |
| Sole Proprietorship | Total & unlimited
Personal assets can be taken to resolve debts |
Total control | Very easy to set up and maintain | Profits are personally taxed to owner
Offers few tax benefits
|
| General Partnership | Total & unlimited liability for each partner
Personal assets of each partner can be taken to resolve debts |
Split between partners | Very easy to set up and maintain | Profits are personally taxed based on percentage of ownership
Can claim on personal taxes |
| Limited Partnership | Limited partners are liable for their business investment
General partners are personally liable |
General partners have management control
Limited partners have no management control |
Easy to set up and maintain |
Profits are personal taxed to partners based on percentage of ownership
Can clam on personal taxes |
| S Corporation | Board and officers have very little limited personal liability | Board sets policy and controls president
Officers conduct day to day operations |
To qualify a business must meet certain IRS requirements
Cumbersome process |
Profits are personally taxed to partners based on percentage of ownership |
| C Corporation | Limited liability, but not total protection from lawsuits
Shields personal liability of owners |
Shareholders, directors & officers run the business
Directors generally set policies |
The most complicated type of business structure
Subject to stricter government control than other types of business |
Corporate earnings are subject to double taxation when corporations are taxed and shareholders receiver dividends
Some additional tax benefits |
| Limited Liability Company (LLC) | Owners risk only their investment
Personal assets not a risk |
Owners manage and control business
Can be run by one person |
Easier to set up and maintain than a corporation. More complicated than a partnership or sole partnership | Corporation is taxed on earnings
Owners only taxed on income taken out of business |
