6 types of Business Structures

Charlie Fletcher

Sole Proprietorship

Basically simplest and most common structure chosen to start a business. it is just you and the business as the owner. you are not incorporated so there is no distinction between you and your business. You don't have to do anything except obtain the business licences for your business. You and your business are the same for taxation and financial purposes so that can be easier for day to day things but risky if you get bigger as more money will be taxed and bankruptcy affects both you and the business.

Limited Liability Company

A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficienciences and operational flexibility of a partnership. Owners are called "members" but can be solely or oligarchicaly owned. these "members" in this structure get their money directly and more easily than if they were taxed and processed as a whole other business entity. Its easy to make as all you have to do is create a business name, file the Articles of Organization, and create an Operating Agreement. that's all that is unique to this business structure. In the eyes of taxation the business isn't taxed just the "members" and thus your funds are put at risk if the business tanks. You do have to have different tax forms and such but its not hard. Its all in all easy to maintain and good for groups but, they usually don't last long and they put your personal funds at risk.

Cooperative

A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. it is run by a hierarchical system where those with more power and those with less vote on business ventures and such. It does allow shareholders but that doesn't affect voting power. these are common in the healthcare, retail, agriculture, art and restaurant industries. to make one all you have to do is file Articles of Incorporation, create Bylaws, create a Membership Application, and then conduct a Charter Member Meeting and Elect Directors. its a more time consuming way to start a business but makes it run smoothly. in the eyes of the law and taxation it is treated much like a corporation but they don't pay taxes on income but on margins and as a business entity. All in all its a very cheap way to operate but its hard to get started and members aren't obligated to contribute.

Corporation

A corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. these are almost always large business and they are costly with fees and operation upkeep. this business structure allows for you to sell shares of your company. to get started you have to establish a business name, file an Articles of Incorporation, and then of course any normal business licences and such. Taxation is the biggest downfall in this business structure as lots of money is taken out and it is had to track. The IRS will do all of its work within your company and in many cases you are taxed twice. All this sounds bad but you have such a small liability personally and this is the most attractive to potential employees.

Partnership

A partnership is a single business where two or more people share ownership. This is great for a team and people who create something together. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business. which means that you both risk an equal amount but can make a lot of money only split one way rather than between many. there are three main types of partnerships: General Partnerships, Limited Partnerships, and Joint Ventures, all have pros and cons but mainly differ by the liability, funding, and time of involvement. To create a partnership you would do the same as a Sole Proprietorship but would have to make legal agreements with the partner. taxation is much like self employment and sole proprietorship but with the addition of Annual Return of Income, Employment Taxes, Excise Taxes, Income Tax, Self-Employment Tax, and Estimated Tax. All in all you two people want to make the most money as fast and seamlessly as possible this is best bet.

S Corporation

An S corporation is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Its for all intents and purposes the same as a corporation but more agreements and such is done with the IRS to avoid double taxation which increases profits and makes running the corporation easier. You do however risk personal funds and property with this setup which drives many large companies away from this type.