Types of Companies in USA: Everything You Need to Know
Types of companies in USA come in the form of sole proprietorships, LLCs, corporations, and partnerships. A sole proprietorship is the simplest business entity type, and is controlled by a single person. 4 min read
Types of companies in USA come in the form of sole proprietorships, LLCs, corporations, and partnerships. A sole proprietorship is the simplest business entity type, and is controlled by a single person. A person who owns a sole proprietorship also incurs all liabilities, profits, and losses during business transactions.
In addition, it is not a separate legal entity from the owner. Overall, a sole proprietorship is the right to use a legal name that is not on your birth certificate. This also means that a sole proprietor is the same as the individual person, and your personal assets are at risk if you incur any damages or debts in the process. With that, you should be aware of the following features of a sole proprietorship:
- Has no tax aspects
- Easier to dissolve than other business entities
- Liabilities are treated in the same manner as personal liabilities
- The sole proprietorship no longer exists when the owner dies
- No formalities are necessary, except for bookkeeping
Losses and profits of a company can be tied to the owner’s personal income. With that, since the company is nothing more than a person with a trade name, no limit exists regarding an owner’s liability.
Benefits of Partnerships
A partnership is an association of two more individuals during a business arrangement. A partnership can comprise the following groups:
Partnerships comprise co-owners that come together in the pursuit of profit. Such individuals hold responsibility for the activity of the business, including profits and liabilities. Partnerships must file informational returns to the IRS to note profits and losses from the partnership and how the profits were divided among the partners. Because of the nature of partnerships, any individual within the group can hold sole responsibility for business debts, regardless of allocation of losses and profits. Noteworthy features of a partnership include:
- Taxation can be a complicated process, but the partnership itself does not pay taxes
- All partners hold joint liabilities within the arrangement
Partnerships can be complex or simple in structure and management, and partners can tailor it how they see fit. A partnership no longer exists when certain standards are achieved, such as bankruptcy or death of a business. A partnership may also end if the partners decide to dissolve the partnership.
Take note of the three different types of partnerships:
- Limited partnership
- General partnership
- Joint venture
A General partnership is the most basic in its inception, assuming equal ownership for all partners involved. All liabilities and management are divided between partners, unless stated otherwise. This also means that all partners are responsible for their portion of an investment in the business. Limited partnership means that partners manage business affairs and must accept partnership debts. In addition, there are one or more limited partners who give capital and share in the profits, but they do not manage the business and hold no responsibility beyond what they contributed.
Joint ventures are time-based arrangements where two or more people work together on a certain project for a limited period. When the project is completed, the partnership is then dissolved. If individuals would like to continue collaboration, they would proceed to general partnership registration.
Limited Liability Companies
Unlike a partnership or sole proprietorship, LLCs offer limited liability protections for all members. LLCs are a combination of a partnership, with the limited liability protections of a corporation. In the same manner as a partnership, LLCs assign various loss and profit shares to members. Moreover, LLCs are flexible in management style, and members can tailor the management structure in their operating agreements.
For tax reasons, single-member LLCs are treated as a sole proprietorship, and multi-member LLCs are designated as a general partnership. All LLC members, including single-member LLCs, are treated as separate legal entities and do not absorb any liabilities or debts that a business incurs. The LLC itself does not pay business income taxes. Rather, all members record their profits and losses on their personal tax returns.
Even though corporations come with the same limited liability protections as LLCs, corporate owners are subject to stringent regulations. For instance, corporate owners must appoint a board of directors to oversee daily affairs, and the board must appoint officers to run various aspects of the company.
In addition, corporations must record meeting minutes and other formalities that LLCs do not have to follow. However, corporations come with benefits, such as the ability to raise quick capital through the selling of stock. The decision to establish an LLC or corporation depends on your business goals, and you should conduct thorough research to see which entity suits your business the most.
To learn more about the types of companies in the USA, you can post your job on UpCounsel’s website. UpCounsel’s attorneys will guide you in choosing the best legal entity for your business and will show you how each entity can help you gain various tax savings. Moreover, they will assist you throughout the maintenance process as you maintain your legal entity over time.