Types of Business Structures

When starting a business, one of the first major decisions you will make is choosing a business structure. The type of business structure you choose can impact many aspects of your business, such as daily operations, taxes, and your personal liability risk. To select the best structure for your small business, you want to consider a few essential factors such as upfront and ongoing costs, if you will need liability protection, if you will seek outside investment and tax implications.
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LLC stands for Limited Liability Company. An LLC is a type of US business structure that combines the features of Corporations, Sole Proprietorships, and Partnerships. An LLC offers limited personal liability protection, similar to that of a Corporation, as well as the pass-through taxation that Sole Proprietorships and Partnerships provide.
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A Corporation is a legal business structure that is owned by shareholders who are issued stock and elect a board of directors to manage and oversee the entity’s activities. Corporations provide liability protection as it is recognized as a separate entity from their owners/shareholders. While Corporations are commonly for-profit businesses but they can also work as a non-profit as a charitable organization.
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A sole proprietorship is the most simple form of business. If you begin to conduct business activities without taking any steps to formally register or incorporate your business, you are a Sole Proprietor. Sole Proprietorships lack any distinction between the business and the owner as an individual, thus have unlimited liability risk.
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A partnership from a business prospective refers to a legal business structure where 2 or more people engage in an unincorporated business. Partnerships are an arrangement by two or more individuals and agree to share the profits and liabilities of the business.
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When setting up and growing a business, you need to keep the legal structure and tax status of your business in mind. As your business grows, it could become necessary to reevaluate and change the tax status of your business so that you can benefit from certain tax advantages. An S Corporation (or S Corp) is one of the business entities that you might consider as your business expands. It could be the ideal choice for your small business, offering a number of financial benefits.
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