Main Structures to Form a Company in The U.S

Choosing the right business structure depends on: amount of earnings and deductions; tax planning; liability exposure; whether one chooses to be a partner or investor; where you’re living and where you’re doing business; business goals and marketing plan.

Four Basic Structures: Sole Proprietorship, General Partnership; Corporation (Two types C an S) and Limited Liability Company (LLC).

  • Sole Proprietorship:  Easy and cheap to establish and owner has absolute control;  unlimited exposure to risk because owner is responsible for all liabilities incurred by the company; investors will not invest in a sole proprietorship
  • General Partnership: Two or more people with a partnership agreement that formalizes rules for profit and loss sharing, ownership %, dissolution terms and management rights; easy to create and maintain;  profits and losses pass through directly to the owners and taxes paid individually by the partners; partners are personally liable for business debts and liabilities
  • Corporation (C or S structure):  Most complex business structure to create;  significant  governance and oversight more appropriate for large established companies with many employees; legal entity that is separate and independent from people who own the company (shareholders); ownership designated by issuing shares of stock;  Shareholder liability limited to investment and no personal liability for debts/obligations of the entity; C Corporation is a separate taxpaying entity and files its own returns—shareholders also pay personal income tax based on profit distribution by the company (double taxation); S Corporation passes all corporate income, losses, deductions and credits to shareholders for Federal tax purposes (no double taxation)
  • Limited Liability Company (LLC):  A hybrid between a corporation, general partnership and sole proprietorship; profits and losses passed through to “members” for purposes of taxation; members are protected from personal liability for debts and obligations of the business. LLC usually includes
  • filing fee paid to State, articles of organization and an agreement that sets forth rules business ownership interest, membership rights and responsibilities, voting power, profit and loss allocation, management structure and buy-sell provisions