Common Business Structures in the USA

by Agro Accounting CPA Accounting for Artists, Freelancers & Creative Com

Your choice of business structure or type is a big decision as it impacts almost every aspect of your business, including the money you raise, personal liability, tax liabilities, filing, legal protection, and benefits. Also, this is the first decision you have to make while registering your business in the state, before getting your tax ID number and filing for the appropriate licenses and permits. Thus, it is a very important decision that you need to make, with the help of professional income tax services for the self-employed, before registering.

Four Common Business Structures

Sole proprietorship

A sole proprietorship is the most common business structure that you will find. Most small local businesses are operating as a sole proprietorship. This type of business structure is ideal when a single owner owns the business. It does not label your business as a separate business entity but automatically “registers” you as a business. You can get a trade name, but your business and personal liabilities are not considered to be separate from each other. There is no protection for your personal assets, and it is hard to raise money under this business structure.

Partnership

When two or more people own a business, a business needs to be registered as a partnership. A partnership allows you to pass the profits through to personal tax returns and, if it carries limited liability, it will provide protection from the debts of the other partner(s).

Partnerships are of two types: limited partnerships (LP) and limited liability partnerships (LLP). In a limited partnership (LP), one owner has unlimited liability and others have limited liability, and in a limited liability partnership (LLP), every owner has limited liability.

This type of business structure is good for small businesses with multiple owners that don’t want to deal with massive paperwork and are looking for affordable accounting for freelance workers.

Corporation

A corporation is the business structure most large businesses build on. This type of business structure provides maximum protection to owners. Owners’ personal assets are protected in case of lawsuits, but this type of business structure requires extensive record-keeping, operational processes, tax filing, and reporting. Corporations are of five types: S Corp, C Corp, B Corp, Close Corporation, and Non-Profit Corporation.

Limited Liability Company (LLC)

Limited liability company (LLC) is a business structure that is recently gaining popularity due to the exceptional benefits it offers as a blend of corporation and partnership business types. This type of business structure protects your personal assets against debts and lawsuits like a corporation, while it offers you the advantages of a partnership. It is also ideal for medium-sized high-risk business owners who need the protection of their personal business assets and are looking for low tax rates on doing income taxes for freelance workers.

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Created on Mar 5th 2021 05:16. Viewed 249 times.

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