Key Takeaways

  • The most common business structures in the U.S. include sole proprietorships, partnerships, LLCs, and corporations.
  • Each structure offers unique benefits and limitations regarding liability, taxation, control, and regulatory requirements.
  • Additional business types include cooperatives, nonprofit organizations, and professional corporations.
  • Factors such as funding, growth potential, and industry regulations often guide which business type is best.
  • Choosing the right business structure is essential for legal protection, operational flexibility, and tax efficiency.

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:

  1. Has no tax aspects
  2. Easier to dissolve than other business entities
  3. Liabilities are treated in the same manner as personal liabilities
  4. The sole proprietorship no longer exists when the owner dies
  5. 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:

  1. Individuals
  2. Partnerships
  3. LLCs
  4. Trusts

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:

  1. Taxation can be a complicated process, but the partnership itself does not pay taxes
  2. 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:

  1. Limited partnership
  2. General partnership
  3. 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.

Sole Proprietorships

A sole proprietorship is the simplest and most common form of business ownership in the United States. It's ideal for individuals starting small or testing a business idea before expanding. Legally, the owner and the business are the same entity, which means the owner assumes full responsibility for the business's liabilities and debts.

Key characteristics of sole proprietorships:

  • Easy to form and dissolve with minimal regulatory requirements
  • Owner retains complete control over business decisions
  • Business income is reported on the owner's personal tax return
  • Limited access to capital since sole proprietors cannot sell stock
  • Personal liability for business debts and legal obligations

This type of company is common among freelancers, consultants, and independent contractors. However, it may not be suitable for ventures seeking to scale quickly or requiring external investment.

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.

Corporations

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.

Cooperatives

A cooperative (or co-op) is a member-owned business that operates for the benefit of its users. Unlike traditional corporations, profits are distributed to members based on their participation, not investment.

Common co-op types:

  • Consumer co-ops (e.g., retail food co-ops)
  • Producer co-ops (e.g., farmer co-ops)
  • Worker co-ops (owned and governed by employees)

Co-ops are often democratically managed, with each member having one vote, regardless of capital contribution. This model fosters community ownership and shared responsibility.

Professional Corporations (PCs) and Professional LLCs (PLLCs)

Certain licensed professions—such as lawyers, doctors, accountants, and architects—must form either a Professional Corporation (PC) or Professional Limited Liability Company (PLLC) depending on state regulations.

Notable distinctions:

  • Owners must hold the same professional license
  • Offers limited liability for business debts, but personal liability remains for malpractice
  • Subject to specific rules set by licensing boards

These entities allow professionals to operate under a formal business structure while meeting licensing and ethical standards.

Nonprofit Organizations

Nonprofit organizations (also known as 501(c)(3) organizations) are formed to serve a public good rather than to earn a profit. They are exempt from federal income taxes and can receive tax-deductible donations.

Typical uses include:

  • Charities
  • Educational institutions
  • Religious organizations
  • Scientific and literary groups

To qualify, the organization must apply for tax-exempt status with the IRS and meet ongoing reporting and compliance obligations. Nonprofits are managed by a board of directors and cannot distribute profits to members or directors.

B Corporations and Public Benefit Corporations (PBCs)

B Corporations (or B Corps) and Public Benefit Corporations (PBCs) are designed for for-profit businesses that also prioritize social or environmental goals. While a B Corp is a private certification offered by B Lab, a PBC is a legal status recognized in many U.S. states.

Key aspects:

  • PBCs must publicly report how they balance profit with a stated public benefit
  • Both structures protect directors from liability when making mission-aligned decisions
  • Ideal for businesses with a dual mission of profit and purpose

These models are especially attractive to socially conscious entrepreneurs and impact investors.

S Corporations

An S Corporation (S corp) is a tax designation that allows a business to avoid double taxation. Unlike C corporations, S corps pass corporate income, losses, deductions, and credits directly to shareholders, who report this information on their personal tax returns.

Advantages of S Corporations:

  • Avoidance of double taxation on corporate income
  • Limited liability protection for shareholders
  • Enhanced credibility with investors and partners
  • Ability to raise funds through stock issuance (limited to 100 shareholders)

Limitations include:

  • Strict eligibility requirements (e.g., only U.S. citizens/residents, max of 100 shareholders)
  • Must file with the IRS for S corp status using Form 2553
  • More rigid operational requirements than LLCs

S corporations are best suited for small to mid-sized businesses seeking tax advantages and investor flexibility while maintaining limited liability protection.

Frequently Asked Questions

  1. What is the most common type of company in the U.S.?
    The sole proprietorship is the most common due to its simplicity and ease of formation.
  2. What is the difference between an LLC and a corporation?
    An LLC offers flexibility and pass-through taxation, while corporations are more structured and can issue stock to raise capital.
  3. Can I change my business structure later?
    Yes, but changing structures (e.g., from a sole proprietorship to an LLC) involves legal filings, tax implications, and administrative updates.
  4. What is the best structure for a small business?
    Many small businesses start as sole proprietorships or LLCs for simplicity and liability protection. The best option depends on your goals and needs.
  5. Do all business types require registration with the state?
    Not necessarily. Sole proprietorships may only need local permits, while LLCs, corporations, and nonprofits must register with the state and meet ongoing compliance requirements.

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.