U.S. Business Structures Introduction -- US Business -- kaizen

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U.S. Business Structures Introduction

When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

Business Entities
Business Types	Sole Proprietorship	C Corporation	S Corporation	Partnership	Limited Liability Company
Formation	No state filing required. Owned and operated by a single, specific individual.	State filing required.	State filing required. No more than 100 shareholders. Nonresident aliens are not eligible.	No state filing required. Owned by two or more partners.	State filing required.
Existence	Automatically dissolved upon death.	Perpetual life.	Perpetual life.	Varies from state to state.	Varies from state to state.
Liability	A sole proprietor has unlimited liability because the sole proprietorship is not a separate legal entity.	Shareholders are not responsible for the debts of the corporation.	Shareholders are typically not responsible for the debts of the corporation.	General partners are liable for the debts of the partnership.	Members are not personal responsible for the debts of the LLC.
Management	A sole proprietor has full control of management and operations	Management reports to the directors, who are elected by the shareholders	Management reports to the directors, who are elected by the shareholders	Partners may have an oral or written operating agreement	An LLC can opt to be managed by its members or managers.
Taxation	Not a separate taxable entity. A sole proprietor pays all taxes on his/her individual return.	Taxed at the entity level. Dividends paid to owners are also taxable income for them.	Generally, no tax at the entity level. Income and losses are passed through to shareholders.	Generally, no tax at the entity level, but must file the information return annually. Income and losses are passed through to partners.	By default, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.
Pass-Through	Yes	No	Yes	Yes	Depends
Double Taxation	No	Yes	No	No	Depends
Transferability	No	Yes	Yes	Yes	Yes

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