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.
Next Avenue Editors Also Recommend:
- A Small Business Is Small Only in Name
- How to Market Your Small Business
- Common Bookkeeping Tips for a Small Business
- What You’ll Need for a Small Business Loan
Next Avenue is bringing you stories that are not only motivating and inspiring but are also changing lives. We know that because we hear it from our readers every single day. One reader says,
"Every time I read a post, I feel like I'm able to take a single, clear lesson away from it, which is why I think it's so great."
Your generous donation will help us continue to bring you the information you care about. What story will you help make possible?
© SCORE. All rights reserved. This article provided by SCORE