A business is defined by Wikipedia as a commercial entity or agency that engages in commercial, corporate, or industrial activities for profit. Businesses may be either for-profit or non-for-profit entities that conduct primarily to meet a social objective or further a personal social cause. In most modern businesses, a company is legally separate from its owner, although sometimes owners and executives of small companies are also directors or owners of other companies. The main purpose of a company is to earn a profit through production and/or services sold to customers. Companies may be privately owned, controlled by an immediate family member, or publicly listed.
A corporation is a separate legal entity from the owner of the company. Unlike a partnership, a corporation does not have a board of directors elected by shareholders. A corporation’s by-laws and regulations are established by a governing board. A corporation may be registered with the state as a corporation, limited by law to carrying on business as a corporation, or even separately for the conduct of business. In some states, all corporations are treated as separate legal entities.
Limited Liability Company (LLC) is another option available for a business to set up a separate legal entity. An LLC is not a corporation. An LLC is organized much like a partnership and has the same basic operating procedures. An LLC is a limited liability, which means that partners will share in the losses of the business and have their personal assets protected in the same manner as personal property held in a partnership. There are several advantages to an LLC. For example, an LLC has the advantages of having limited liability so it is less likely to file a lawsuit against its partners if there is a breach of contract.
Some small businesses might set up a sole proprietorship or a corporation for the sole purpose of conducting trade. Though this is a popular choice for many small businesses, sole proprietors and corporations are not always the best choice for the majority of small businesses. This is because a sole proprietor is considered a highly personal type of entity and does not carry the same tax or legal protection afforded to other entity types such as LLCs and LTCs. Also, a sole proprietorship is not as flexible in terms of electing directors and officers, and in most cases the business is only accessible to owners of the business. On the other hand, both corporations and sole proprietors have the option to start up a Limited Liability Company for their business.
Another common option for small businesses is a Limited Liability Company (LLC). An LLC is organized much like a partnership and has the same basic operating procedures. An LLC is limited in the same way as a corporation and may also elect members. However, unlike a partnership, there are typically no special benefits to owning an LLC. An LLC can only be owned by one person and although there are minimal differences between an LLC and a sole proprietorship, most business owners prefer the privacy that comes with a sole proprietorship.
A sole proprietorship and a partnership share some similarities in the way the business is set up for tax purposes. Like a sole proprietorship, a partnership does not pay corporate taxes until the partners receive their dividends. The main difference between the two is that a sole proprietorship is not registered for taxation with the IRS until it has profit made from its business. A sole proprietorship is only registered as a business when all the partners take an active part in its management. Then only does the IRS consider the business to be a qualifiedrant and subject to IRS tax regulations. On the other hand, a partnership must register as a C corporation or S corporation, pay taxes and meet many other requirements before it will become eligible to be treated as a valid US corporation.