What is a Sole Proprietorship?
A business carried on by the owner as an individual. The owner of a sole proprietorship is personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.
What is a Partnership?
A partnership is an association of two or more persons. In contrast to a corporation, a general partnership can come into existence without the need to file any formal papers with any state official. The owners of a partnership are personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.
What is a Corporation?
A corporation is a legal entity that can exist separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.
Incorporation FAQs
What is an S Corporation?
Standard business corporations or C corporations are required to pay income tax on taxable income generated by the corporation. Making a subchapter S election by completing and filing federal Form 2553 with the IRS is a way to avoid having your corporation treated as a separately taxable entity.
An S corporation is a standard business corporation that has elected a special tax status with the IRS. This tax treatment allows the corporation not to be a separately taxable entity. Instead, the income of the corporation is treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders. Thus, shareholders� individual tax returns report the income or loss generated by an S corporation.
To be classified as an S corporation, a corporation must make a timely filing of Form 2553 with the IRS. IRS instructions indicate you must complete and file this form:
- at any time before the 16th day of the 3rd month of the tax year if filed during the tax year the election is to take effect, or
- at any time during the preceding tax year. An election made no later than 2 months and 15 days after the beginning of a tax year that is less than 2 � months long is treated as timely made for that tax year.
An election made after the 15th day of the 3rd month but before the end of the tax year is effective for the next year. For example, if a calendar tax year corporation makes the election in April 2005, it is effective for the corporation�s 2006 calendar tax year.
In order to qualify for S corporation status, the corporation can have no more than 75 shareholders, who must all consent in writing to the election to be an S corporation. The shareholders cannot be non-resident aliens. Also, an S corporation can have only one class of stock (disregarding voting rights). Other restrictions apply and can be found within the IRS instructions for filing Form 2553.
To compare the S corporation to the C corporation and limited liability company, view our comparison page.
What is a Limited Liability Company?
The limited liability company or LLC is not a partnership or a corporation. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.
LLC FAQs
What is a Professional Corporation or Professional Limited Liability Company?
-
Professional corporations (PCs) and professional limited liability companies (PLLCs) are corporations and limited liability companies organized for the purpose of providing professional services. What services constitute professional services are defined by state law, and differ from state to state. Typically, professions that require a license, such as doctors, chiropractors, lawyers, accountants, architects, or engineers are required to form professional corporations or PLLCs. Typically, professional corporations or PLLCs must be organized for the sole purpose of rendering professional services of the licensed practitioners.
-
-
Professional Entity FAQs
What is a Nonprofit Corporation?
-
A nonprofit corporation is a corporation formed for purposes other than generating a profit and in which no part of the organization's income is distributed to its directors or officers. Nonprofit corporations are formed pursuant to state law, often under the Revised Model Non-Profit Corporation Act(1986). A nonprofit corporation can be a church or church association, school, charity, medical provider, legal aid society, volunteer services organization, professional association, research institute, museum, or in some cases a sports association. Nonprofit corporations must apply for tax-exempt status at both the federal and state level.
Non-Profit FAQs
-
-
Business Entity Comparison Table
