Generally, all businesses fall into one of these broad categories: Sole Proprietorship, Partnership, Limited Liability Corporation, or Corporation.
A sole proprietorship is an unincorporated business owned by one individual.
A partnership is a legal entity existing between two or more persons who join to carry on a trade or business.
An LLC is a business structure with flow-through tax treatment of a partnership, along with the limited liability protection of a corporation. Income and income tax are distributed among the owning members, but members are not personally liable for debts of the business.
A corporation is a distinct legal entity, distinct from the individuals who own it. Corporations offer limited liability protection for share owners, but profits are taxed at the corporation level and as dividends with the share holder. An S-Corporation offers many of the benefits of incorporation, without exposing the shareholders to the double taxation a general corporation requires.
No matter which type of business organization you choose to form, make sure you consider all of your options before making a decision. It’s a good idea to consult with an attorney, so you understand the benefits and drawbacks to each type of business entity.
In the past few years, many new business owners have selected a Limited Liability Corporation (LLC) for a variety of reasons. A sole proprietorship is another option used fairly frequently for a small business with a single owner.
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© SCORE. All rights reserved. This article provided by SCORE (www.score.org), Mentors to America's Small Business. Since 1964, SCORE has helped over 9 million aspiring entrepreneurs and small business owners through mentoring and business workshops. Get free advice from more than 12,000 volunteer business mentors in over 340 chapters across the nation. Learn more at www.score.org