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Business Formations

In: Business and Management

Submitted By deathstarr
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Business Formations There are many kinds of business formations available. Each one is distinctly designed to address a business’s specific needs. Business formations generally consist of sole proprietor, partnerships, corporations, and limited liability companies. Corporations and partnerships can be further broken down into what’s known as general partnerships, limited partnerships, C corporations, and S corporations. The key difference is in reporting and accountability. When it comes to a C corporation, the largest shareholder typically owns the entity. Shareholders are accountable for the entity and must be taxed as an entity and individually. In the event of a lawsuit a C corporation's shareholders are protected; only the corporation is held accountable. In case of bankruptcy the shareholders also have limited liability. A dissolution requires a two thirds majority vote in favor of dissolution. Assets are then distributed accordingly. Should there be a dispute the courts typically appoint someone to liquidate the assets. S corporations are much like C corporations, except they reporting and accountability. Instead of the corporation being taxed, the shareholders are taxed individually. S corporations hold the shareholders accountable.
Limited Liability Company can be owned by various members. As for accountability, a member’s individual assets are protected. Members report income from the LLC individually.
Partnerships are taxed like LLCs, individually. There are two types of partnerships, general and limited liability. General partnerships hold individuals who directly manage the business accountable. Limited liability does not require it’s members to directly manage the business. It does however require an investment in which they are held accountable.
In a sole proprietorship there is only one owner. They assume all liability both financially and legally. The owner is required to report all income in their individual tax return. A sole proprietorship will not require any shareholders, or partners and is a fairly type of business to begin.

DeSetto, J. (2008). The Business of Design. Cengage Learning VitalBook file. Bookshelf.
U.S. Small Business Administration. (2014). Choose your business structure. Retrieved November 30, 2014, from sba.gov: https://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/choose-your-business-structure

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