Types Of Business Entities
Considered the simplest entity structure, a sole proprietorship refers to a person who owns a business and is personally responsible and liable for all its debts.
A general partnership is an agreement between two or more partners to share the assets, profits, and liabilities of a business venture. All partners have unlimited personal liability in a general partnership.
A limited partnership refers to an arrangement between two business partners in which one partner assumes full liability and the other partner’s liability is limited up to the amount they have invested.
S corporations are smaller, closely-held corporations. These corporations are legal entities and their shareholders are protected from liability. Shareholders of an S corporation must report company revenue as personal income to avoid corporate income tax, as per IRS requirements.
C corporations are either large or small corporations that are taxed separately from their shareholders. C corporations are considered legal entities and their shareholders are protected from liability.
Limited Liability Companies (LLCs)
Limited liability companies are considered hybrid entities. LLCs are a mix between a corporation and a partnership. If the LLC has one owner, it is taxed like a sole proprietorship. If there are multiple owners, the LLC is taxed like a partnership.
Not-For-Profit Organizations (NPOs)
Not-for-profits are considered legal entities that do not earn profits. Instead, all revenue raised by the company is used to maintain the organization and meet its objectives. NPOs that fulfill the IRS’ requirements are exempt from federal income taxes.