Many entrepreneurs and aspiring business owners choose to form a limited liability company. This is because it is one of the most cost-effective and reasonable ways to get your company off the ground. However, some other business types may also be worth considering. Each option has advantages and disadvantages, but may be worth considering.
Sole proprietorship
Sole proprietorship is the simplest way to run a business. In this case, an individual conducts business without establishing a formal organization. You can operate as a sole trader under your own name or under a pseudonym. In the latter case, you will need to file “business activity” or DBA documentation with state, county, and sometimes city governments.
Sole proprietorship owners report business income and profits on their personal tax returns. As of 2023 he should be prepared to pay 15.3% self-employment tax. Unlike an LLC, a sole proprietorship assumes all the risks and has no liability protection. They also lack the flexibility to choose whether to operate as a pass-through entity or a corporation. A sole proprietorship may be a good starting point for an individual, but you may later consider forming a single-member LLC.
partnership
A partnership is a business model established by two or more people working together to form a commercial company. He can choose to form three types of partnerships: general partnership, limited partnership, or limited liability partnership.
In a general partnership, everyone has complete control and unlimited liability as well. This differs from a limited partnership, where one member has complete control of day-to-day operations and the other members have limited control and responsibility. In an LLP, all partners have limited liability. As with partnerships, you and your partner can operate under your DBA as long as you complete the necessary paperwork, but some states may require partnership registration. there is.
Partnerships pay no income taxes because they are “pass-through” entities. This means that at tax time, each partner reports their share of profits and losses on their tax return.
Co., Ltd.
You can form and operate C corporations, S corporations, B corporations, and privately held corporations in the United States (depending on state options). Although LLCs offer flexibility in many ways, they have a more rigid corporate structure in comparison.
C Corps
A C-corp is the most common form of this business model. Recognized as an independent tax entity. In addition to LLCs, there are several limited liability protections.
The owners of a company are known as shareholders, and the level of ownership is reflected in the percentage of company stock each person owns.
S-Corps
S-corp and C-corp businesses differ primarily in the way they are taxed. Unlike standard corporations, S-corps are treated as “pass-through” entities that are exempt from federal income taxes. Instead, S-corp shareholders are taxed separately. This model allows shareholders to offset profits with losses accumulated elsewhere.
B Corporation (B Corp)
In recent years, more and more businesses are choosing to operate as B Corps. Forming a B Corps means that these companies receive certification for their ability to generate social benefits through a qualified third-party organization or state-level certification. This is often related to employment, local communities and the environment.
B-corps are unique in their mission and purpose. The individuals or groups behind these entities prioritize operating them as ethically and transparently as possible. In some states, B corps must submit annual benefit reports demonstrating their contributions to the public interest in order to maintain their status.
Closed legal entity
Closed companies do not have a traditional corporate structure. Instead of publicly traded shares, companies are run by a private group of shareholders. No board of directors required.
non-profit organization
A nonprofit organization is an organization that exists for a reason entirely separate from income generation, and cannot distribute a portion of the organization's revenue to its members, officers, or directors. These organizations may be categorized into different formats. For example, you can form a nonprofit corporation or partnership. Common examples of nonprofits include churches, public schools, political organizations, volunteer work, and labor unions.
One of the well-known benefits of operating a nonprofit organization is tax-exempt status, but to maintain this, organizations must adhere to certain requirements. For example, the IRS notes that such companies may lose their tax-exempt status by taking active steps to obtain personal income or through political lobbying.
Cooperative
A cooperative or co-op is a type of business that is owned and managed by people and uses its services to meet their needs. Cooperatives typically operate in the insurance, credit, health care, telephone, electricity, housing, transportation, child care, and utility industries. Farmers often use cooperatives to both sell and process crops and livestock.
According to the U.S. Department of Agriculture, as of 2022, there are currently more than 30,000 cooperatives operating in the country. They are thought to generate more than $650 billion annually.
Cooperatives are not tax-exempt entities. These are subject to real estate taxes, sales taxes, employment taxes, personal property taxes, and taxes related to things like unemployment compensation, workers' compensation, and various public services.
