If a company will have just one owner or a married couple as the owner, it is considered a single-member LLC.
Understand common business structures and organize your formation process with clear, practical information.
Sole Proprietorship and Partnerships
A Sole Proprietorship is the simplest structure for operating a business owned by one person (or a married couple). By default, states will consider a single-owner business to be a Sole Proprietorship unless the owner (the sole proprietor) files business registration paperwork to form another entity like a Limited Liability Company (LLC) or a C Corporation.
Key elements of a Sole Proprietorship
- Unlike a Limited Liability Company or C Corporation, a Sole Proprietorship is not a formal business entity.
- Sole Proprietors do not have to file business registration paperwork with the state.
- As soon as the owner begins to conduct business with the intent to make a profit, the Sole Proprietorship is established.
- Sole proprietors may have to obtain certain types of business or professional licenses and permits to operate legally in their industry or location.
- Sole Proprietors are not considered employees of their companies.
- Sole Proprietors are paid by withdrawing funds (taking owner’s draws) out of their businesses for personal use.
- It’s common for entrepreneurs to start as Sole Proprietorships and then register their companies as formal business entities when they begin to grow or expand their businesses.
Limited Liability Company (LLC)
An LLC is a formal business structure that is the simplest to form and maintain. Creating an LLC offers some of the same benefits as a corporation, without the costs and compliance complexity. Business owners who are looking for personal liability protection, tax flexibility, and management options find that an LLC will be an ideal choice. There are multiple types. Before you set up your Limited Liability Company, consider your needs and then compare these requirements and options.
Types of LLC
If an LLC will have more than one member, it is considered a multi-member LLC.
When owners run the day-in, day-out operations of the business, the LLC is member-managed. Most LLCs use this structure.
When LLC members want to appoint a manager (who could be someone that the company hires or one of the members) to handle daily operations, the LLC is manager-managed.
When an LLC has registered its formation documents (Articles of Organization) in a state, it goes on record as a domestic LLC there. That state is the company’s domicile (a.k.a. home state).
If an LLC is registered as a domestic LLC in one state and is conducting business in another state, it must usually file as a foreign LLC in the additional state(s).
A Professional Limited Liability Company (PLLC) differs from the standard LLC in that only professional license holders (physician, attorney, accountant, etc.) may register the company. Like a regular LLC, a PLLC may elect to be treated as an S Corporation for tax purposes, which can help minimize the self-employment tax burden on its members.
Series LLCs are business entities (available in some states but not all) that have a parent (umbrella) LLC and other LLCs (series) beneath it with their own debts, obligations, and rights. Usually, individual series in the series LLC are taxed separately.
Corporations & Nonprofit
The main reason to incorporate is to minimize your personal liability. Once your business is incorporated, it exists as a separate business entity. Essentially, you put a wall separating your personal assets from anything in the business. Of course, there are other benefits too.
Top reasons to incorporate
- Minimize your personal liability and protect your personal assets
- Get more flexibility when it comes to taxes (talk to your CPA or tax advisor for specific advice on your personal situation)
- Boost the credibility of your small business
- Add a layer of privacy (don’t use your personal name and home address to represent your business)
- Start building your business credit
- Protect your business name and brand at the state level
Types of corporation
A corporation that reports corporate income, losses, and deductions through its shareholders. Typically, the shareholder and/or owner reports corporate income on his/her personal income tax returns.
Also referred to as a general for-profit corporation, a C Corporation is a legal, taxable entity, separate from its owners. Its shareholders’ personal liability is limited to the amount they have individually invested in the company. In contrast, owners of a sole proprietorship or partnership are personally liable for business debts and legal issues.
Individuals who provide a professional service can also benefit from forming a Professional Corporation. Where a business provides a professional service, most states have special filing requirements when incorporating.
A nonprofit has the same initial paperwork that a corporation has, with one difference. Nonprofits have a mission statement that clearly defines the organization. The purpose of the nonprofit must be laid out clearly.
“Outstanding service with a personal touch.”Happy Customer
Start with a conversation.
Book a complimentary 30-minute consultation to introduce your needs, discuss your goals and explore whether our services are a fit. There is no pressure or obligation.
Request a free consultation