Business Entities

There are four general types of business entities:

A Sole Proprietorship (link to Sole Proprietorship) is for a sole individual doing business under their own name, or under a fictitious name.

A Partnership (link to Partnership) There are numerous types of partnerships that have various types of partners and personal liability protections.

A Corporation (Link to 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 a voluntary association of two or more people who jointly own and carry on a business for a profit. In some states, such as California, there are requirements of certain professionals to operate as a Professional Corporation, often abbreviated as P.C. and corporations can be tax-exempt by being declared a 501(c)3, they can be taxes as a C-Corporation, or taxed as an S-Corporation.

A Limited Liability Company (Link to Limited Liability Company) is a newer business entity that is a hybrid that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership or sole proprietorship. The owners of a Limited Liability Company are referred to as “members.” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations, or other Limited Liability Companies. Limited Liability Companies can be taxed as a Corporation (either S-Corporation or C-Corporation), as a Partnership, or even as a disregarded entity. When they can be used, a Limited Liability Company often offers the best options available.

The choice of what business entity you want can revolve around legal issues (what can you do), how you want to operate the business, or even based on personal preference of naming the business.