Corporate Structures

Question 1

Sole Proprietorship

Answer 1

No separation between business and owner

• no formal action to start and not taxed separately
• owner entitled to all profits and liable for all losses

Question 2

Partnership or limited liability partnership

Answer 2

Each partner contributes to all aspects, must establish legal partnership agreement for future business decisions

• legal liability extends from business to individuals
• requires registering partnership with the state
• Business doesn’t pay taxes

Question 3

Limited Liability Partnership

Answer 3

Allows partners to have limits on personal liability

Question 4

C Corporation

Answer 4

Classic Corporate structure with independant legal identity owned by shareholders

• formation requires registration and corporate filings and corporation legally liable for actions and debts (not shareholders)
• must register with IRS and obtain a tax ID: corporation pays income taxes
• DOUBLE TAXES

Question 5

S Corporation

Answer 5

Independent legal entity for most liabilities and allows shareholders to buy/sell shares

• Profits and losses can pass through to personal income taxes
• only certain companies qualify
• NO DOUBLE TAXATION

Question 6

Limited Liability Company (LLC)

Answer 6

Hybrid structure with legal benefits of corporation and tax benefits of partnerships

• Formation requires state filings, less paperwork than a corporation
• Members are considered self-employed
• AVOIDS DOUBLE TAXATION