Types of Business Entities

When you start a business, you must choose the type of entity it will fall under. The type of entity you choose for the business will determine the type of income tax return that has to be filed each year. The type of entity will also determine the legal structure of the business. This article will list the types of business entities.

Types of Business Entities

• Sole Proprietorship: It has the least amount of legal formalities. The owner assumes responsibility for the finances and operation. The owner's personal property is tied to the business.




• C Corporation: The owner's personal property is separate from the business. Shareholders get protection from contracts and debts. Profits are taxed as they are made.




• S Corporation: It provides the shareholder's with protection from liability. They do not pay federal income taxes. The taxes are paid to the shareholders instead.




• General Partnership: Two or more people can come together to operate a business. Loss, operation and profit are shared among each person. They are equally responsible for debts. They do not file taxes but must report how much each person has in profit or loss.




• Limited Partnership: Partners are responsible for a limited amount of liability. One partner organizes and manages the operation of the business, which allows the other partners to have limited liability because they do not participate n everyday affairs.




• Limited Liability Partnership: The abbreviation is LLP. Individual partners are not liable for acts that employees or other partners cause, which are not under their control. LLPs are not recognized in every state. Each partner must report their losses and profits on their personal tax returns.




• Limited Liability Company: The abbreviation is LLC. The partners control shares in the company. Their liability is determined by how much they invest. This is a complicated entity that should be discussed with an attorney.