In the United States, there are several business structures. However, 4 of them are the most common structures that everyone should know. Those are:
  • Sole Proprietorship
  • Partnership
  • Corporation
  • Limited Liability Company (LLC)

Sole Proprietorships

According to the Internal Revenue Service (IRS), sole proprietorships are the most common business structures in the United States. Sole props allow the owner(s) to take control of their businesses and are usually working from home. Basically, a sole prop owner is someone who runs an unincorporated business by himself or herself.
Maintaining their own records and paying the IRS as self-employment taxes are simply a sole proprietor’s responsibilities. If you own an LLC as a single member, this does not mean that you are a sole proprietor as your company will be treated as in an LLC form. Sole props are not the business structures that primarily need an EIN. However, we strongly recommend that you get one as it provides legal protection and benefits.

 Partnership

In the partnership structure, two or more people share the control and responsibility of business. It is a good idea to sign a legally binding agreement between all partners to avoid possible disputes. We can list some of the issues that should be included in this agreement as follows:
  • how to make decisions
  • the amount of investment each partner will initially make
  • the roles, responsibilities, and rights of each partner
  • the method of sharing profit and loss
  • when and how to distribute profit
  • how to resolve disputes
  • how to take new partners
  • how existing partners can leave the partnership
If you are a partnership then you may be liable for annual return of income, employment and excise taxes. For more details, please check here.

Corporation

It can be considered as the most complex business structure in the U.S. Such a business structure separates the liabilities and obligations borne by company activities from the responsibility of the owners. Corporations are regulated according to the state laws in which they are formed. By comparison to a sole proprietorship and partnership businesses, corporations are taxed at corporate tax rates as separate entities.
The IRS imposes individual tax rates on corporate owners. C corporation and S corporation are the two common business types under a corporation. The difference between these two sub-charts is due to different tax rules.

Limited Liability Company (LLC)

Abbreviated as LLC, a Limited Liability Company is such a business structure that contains variable regulations depending on its set up location. Therefore, you should check the state you want to form your LLC in.
The main reason to set up an LLC – whether you’re starting a new business or formalizing an existing business – is to separate your personal assets from your business. LLCs may be owned by one or more people, known as “members,” of LLC. An LLC’s profit goes directly to its owners and the owners must report their share of the profits on their individual tax returns. Forming an LLC prevents your company from being taxed twice. This is called “pass-through” taxation.