There are many types of companies LLC you can choose from when deciding which business entity will work best for your new or established company. Selecting the right type of business structure for your company will not only help you maximize profits but also achieve the most operational success. The choice you make will determine:

  • How your business will operate.
  • How taxes will be handled.
  • Whether you will have personal liability.
  • How the profits and losses of the business will be controlled.

Many owners will incorporate their business as a C corporation, an S corporation, or a limited liability company (LLC) by filing Articles of Organization or Articles of Incorporation. This helps protect their personal assets from business debts and liability. To determine which business entity is best for you, it is important to look at the three main types of business organization structures:

  • Corporation. In a corporation, the business is completely separate from its owners. While the owners are shareholders, they can also be employees that get paid for their duties.
  • Multiple-Owner. In multiple-owner businesses, multiple individuals that are not employees can own the company. These types of businesses typically include partnerships and LLCs.
  • Single-Owner. Businesses that have a single owner are called sole proprietorships. A sole proprietorship will not have to register with the state.

The specific business types will be determined by the state business division or corporations office where your company is registered. While all states allow companies to form as corporations, partnerships, or LLCs, there are variations from state to state. You can check with your Secretary of State or corporations office to determine what business types are allowed in your state.

Business Types

Despite the variations between states, the most common business types generally include:

Sole Proprietorships

This title is used to describe any business that has one owner. It is the simplest business structure and is considered an extension of the individual instead of a separate entity. It's easy to form and maintain — you simply open a company bank account and start doing business. It does, however, leave the owner open to liability. In a sole proprietorship, your personal assets can be sought to settle business debts or lawsuits.

Partnership

Any venture or business that has more than one owner is a partnership. A partnership can be formed by trusts, corporations, or individuals. The owners share all income, debts, and liability. Partners must report their shares of the company's profits and losses on their personal tax returns.

One of the downsides of a partnership is that the partners will be held directly liable for the business' debts, losses, and tax and financial liabilities. Owners in a partnership are also vulnerable in the event of a lawsuit against the business. You can form one of several types of partnerships, including:

  • Limited Partnerships. A limited partnership includes one or more general partners and one or more limited partners that come together to form a partnership. The general partners in this type of business are responsible for the company's operations and personally liable for any debts. The limited partner will have a share of the profits but won't participate in operations.
  • Limited Liability Partnerships. General partners that form an LLP will enjoy some liability protection from actions of employees and other business partners.
  • General Partnerships. A general partnership is made up of general partners who all participate in the company's day-to-day functions and are personally liable for all business debts.

Limited Liability Company

An LLC is a business structure that's part corporation and part partnership. It provides its owners, or members, with more favorable tax treatment as well as protection from personal liability. Limited liability companies can have more than one owner and/or designate a managing member that's responsible for running the organization.

Limited liability company regulations will vary from state to state. If a company forms a single-member LLC, it will receive similar tax treatment as a sole proprietorship. If it forms a multiple-member LLC, it must pay taxes like a partnership. Regardless, the company's profits and losses pass directly through to the members' personal income tax returns.

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