Types of Business Entities

The legal structure of any business stands on the stronghold of its corporate entity. Different types of businesses demand different business entities and accordingly the legal structure is sorted out. Given below are some of the few business entity structures that might give you an idea about selecting for your own business entities:

• Sole proprietorship
• C Corporation
• S Corporation
• Limited Liability Company

Now, lets have a detailed view of each of them so at the end you had be better equipped with the knowledge of each of the entities for your business:

• The Sole proprietorship is also known by the name DBA (Doing Business As). This type of business entity is not separate from the owner; it could be a different name. The businessperson operates the business with some fictitious name. The owner of the business is personally liable for the debt of the company; the income from the business is added on to the owner’s personal tax returns. If more than one person holds the business, it is termed as the “General partnership”.The main advantage of setting up a sole proprietorship is that, it’s easy to setup and also maintain it. The main disadvantage of sole proprietorship is that a person becomes personally liable for all the losses of the company.
• C Corporation is also commonly referred as a regular corporation; in this the organization or a company is a separate entity that shields the owners of the business from personal liability and also the company debt. As a separate legal entity, the corporation can enter into separate legal contracts; the company can individually sue or get sued from other companies or individuals separately from its owners. The corporation can raise money by selling the stocks of a company or transferring the stocks.The rules set by the corporation are called Corporate Bylaws, as the company rules change the company law can be modified. C Corporation is one the oldest and the most successful business entity preferred by the people. It provides the personal liability protection, the performance of which is conveying. At the negative side, it is an expensive affair to set up a DBA, it involves much of paperwork and other formalities.
• A company may only select “S corporation status”, after the corporation is formed. This is done with the adoption of an appropriate resolution and also completing and submitting an Internal revenue service form. After the filing is done, the corporation can be taxed like a sole proprietorship or as a partnership. The income can then be passed on to the shareholders for computing the tax returns. Most of the new corporations opt for S corporation status so that the profits and losses can directly be added to shareholder’s personal tax returns without them having to pay the taxes on the profits earned and also again while giving back to shareholders as an income. The method is known as double taxation and is the main reasons the S corporations were created. The S corporation can always revert back to its regular Corporation very easily.The main advantage of S corporation is that the company can preserve its prestige without double taxation. The limitations with S corporations does not allow to deduct some expenses like the health insurance, the travel, entertainment, etc. like in the case of the normal corporations. The Corporation is restricted to only 100 shareholders, the S corporations cannot own or be owned by other business entities.
• The Limited liability company is an easy management company and is like a hybrid between a partnership firm and the corporation. The company is liable for ‘pass through’ taxation that is the profits and losses are summed up in owner’s personal tax returns like in the case of partnership. It’s a new form of a company that was created in the year 1977 and is recognized in over 50 states.The limited liability company is a legal entity not similar to a corporation involving very few formalities. The members in a LLC are called as members and not shareholders. The agreement is called as an “Operating agreement”, this agreement sets the rule for company’s operation and is modified based on the company’s future growth and needs.The advantage of LLC is that it provides a liability protection without corporate formalities like the shareholder meetings, board meetings, etc. it foregoes the extra levels of managements. Formation of a LLC is more difficult compared to a DBA and requires more paperwork.