When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you must file. The most common forms of business are the sole proprietorship, partnership,  C-corporation, and S-corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute.

​

In general, forming a business entity serves four purposes: (1) protecting business owners; (2) saving taxes; (3) providing certainty and structure to business operations; (4) presenting a professional image to customers and the general public

​

Business Formation Types:

​

What is a corporation?

• A corporation is an independent legal entity that exists separately from the people who own, control and manage it.

• It does not dissolve when its owners (or shareholders) die because it is considered a separate “person.”

• A corporation can enter into contracts, pay taxes, transact business, etc.

• The owners have limited liability.

• Contact an attorney or an accountant to determine if this structure works for you.

​

What is a limited liability company?

• A limited liability company (LLC) is similar to a corporation, but with slight differences.

• Like a corporation, it offers limited personal liability. 

• An LLC is not required to hold regular stockholder or management meetings, and there are no requirements to comply with other corporate formalities.

• Contact an attorney or an accountant to determine if this structure works for you.

​

What is a partnership?

• A partnership exists when two or more persons co-own a business and share in the profits and losses of the business.

• Each of the co-owners or partners contribute something, usually money or real property, to the business endeavor.

• Contact an attorney or an accountant to determine if this structure works for you.

​

What is a general partnership?

• A partnership where the rights and responsibilities are divided equally among the partners.

• The partners are referred to as general partners because each partner can act on behalf of all the partners, and each partner is responsible for the partnership’s debts and obligations.

• Contact an attorney or an accountant to obtain more information.

 

What is a limited partnership?

• A partnership composed of both general and limited partners.

• This type of partnership allows each partner to determine and/or limit his or her personal liability.

• Unlike general partners, limited partners are not responsible for the partnership’s actions, debts and obligations.

• General partners have the right to manage the business. Limited partners do not.

• Both general and limited partners benefit from the business’s profits.

• Contact an attorney or an accountant to determine if this structure works for you.

​

What is a sole proprietorship/fictitious name?

• A sole proprietorship is the simplest and most common structure chosen to start a business.

• It is an unincorporated business owned and operated by one individual with no distinction between the business and the owner. 

• Sole proprietorships, when not operating under the owner’s legal name, must register a fictitious name.

• Contact an attorney or an accountant to determine if this structure works for you.

​

What is the difference between EIN and TIN?

The main difference between the two is that an EIN is used for identifying companies while a TIN is used for identifying taxable individuals in the U.S. While both are used for reporting and identifying purposes, the difference lies in the scenarios in which a particular number can be used.