Types of Business Entities in the United States of the America
A sole proprietorship is the simplest form of business structure. It may be suited to the start up a one-person business. It is more flexible than either the partnership or the corporation. However, all business responsibilities are those of the single owner. This includes unlimited financial liability incurred by the business.
A partnership is the relationship between two or more persons or companies that carry on a trade or business together. Personal liability is joint and individual for the general partners who are responsible for the obligations of the partnership. The life-span of the business is for a designated period stipulated in the partnership agreement or until a dissolution event occurs, subject to any right to continue that may be stated in the partnership agreement. In the absence to a partnership agreement, the New York State Partnership law sets forth the rights and duties of the partners.
Limited Liability Partnership [LLP]
A Limited Liability Partnership is the relationship between two or more persons or companies that carry on a trade or business together. Personal liability is joint and individual for the general partners who are responsible for the obligations of the partnership; limited partners are liable to the extent of their capital contribution to the partnership. The life-span of the business is for a designated period stipulated in the partnership agreement; or until a dissolution event occurs, subject to any right to continue that may be stated in the partnership agreement.
Limited Liability Company [LLC]
LLCs have long been a traditional form of business structure in Europe and Latin America. LLCs were first introduced in the United States by the state of Wyoming in 1977 and authorized for pass- through taxation (similar to partnerships and S Corporations) by the IRS in 1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C. have now adopted some form of LLC legislation for both domestic and foreign (out of state) limited liability companies. Many business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both.
Corporate liability protection of the owners for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. Protection of personal assets from business debt. Profits/losses pass through to personal income tax returns of the owners. Great flexibility in management and organization of the business. LLCs do not have the ownership restrictions of S Corporations making them ideal business structures for foreign investors.
General Corporation C
This is the most common corporate structure. The corporation is a separate legal entity that is owned by stockholders. A general corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. A stockholder's personal liability is usually limited to the amount of investment in the corporation and no more. Owners' personal assets are protected from business debt and liability. Corporations have unlimited life extending beyond the illness or death of the owners. Tax free benefits such as insurance, travel, and retirement plan deductions. Transfer of ownership facilitated by sale of stock. Change of ownership need not affect management. Possibility to raise capital through sale of stocks and bonds.
(All S Corporations must have shareholders who are citizens or residents of the United States.)