One of the decisions that a business owner has to make is what type of organizational structure their business is going to use. There are four main types of business structures in the U.S:
- Sole Proprietorship – the simplest business structure, in which a sole person retains ownership and control of the business. This is common for home-based business or services offered from your home that meet a need or customers or clients utilize your services from your home office. These businesses are responsible for their own record keeping and paying the IRS in the form of self-employment taxes and are held personally responsible for their company’s debt and financial obligations.
- Partnership – is formed when two or more people join together to run a business. Each partner has equal share in the net profits and losses of their business. Like a sole proprietor, each partner reports their income on their personal tax return and pays self-employment taxes to the IRS. They are also personally liable for financial debt and obligations of their company and the actions of other partners.
- Limited Liability Company – is a structure that can provide owners the protection from liability and other obligations similar to a corporation. Limited liability companies can also be set up and managed like partnerships. The taxation of LLCs also depends on its structure.
- Corporations – probably the business structure most familiar to people. Corporations are the most complex business structure. Separates the liabilities and obligations incurred by company operations from being the responsibility of the owners. Corporations are regulated by the laws of the state they are set up in. Unlike sole proprietor and partnership businesses, corporations are taxed as separate entities at corporate tax rates.