There are several forms of business structures, which all have positive and negative characteristics:

Sole Proprietor: This is the simplest to set up, especially if you can use your own personal name as part of your business name. Otherwise, a “DBA” or “Business Name Registration” will be required, to legally show you are operating a business under a name other than your own personal name. There is no government registration or annual registration fee for your business, besides a business permit, if you operate as a Sole Proprietor. However, this type of business suffers from maximum legal liability. You as the owner are compeltely liable for all business debts.

Corporation: This is one of the most popular forms, and has been around for a very long time. A Corporation is an offically recognized company, with the registration documents submitted to the state government. A fee is paid both at the time of original creation of the company, and each year afterwards, to allow the company to continue operations. A Corporation can be operated by one single person, or many people. The profits of a corporation are calculated on a Corporate income tax return, and the tax is paid at corporate tax rates, which are different than personal income tax rates.

LLC (Limited Liability Company): The LLC is similar to a Corporation in that you must register documents and pay a fee annually. The concept of an LLC is still relatively new in many states, and several states look at an LLC as if it was a glorified Partnership. The LLC offers a very similar management structure as a Corporation, and offers legal protection as well, but the taxable profits and loss may be passed on to the members of the LLC, in much the same way as to the partners of a partnership. The decision as to which way an LLC will be taxed (as a partnership or as a corporation) is usually decided upon when the LLC is first formed.

Nonprofit Corporation: If you intend to operate your company for religious, social welfare, public benefit or educational purposes, you may consider a Nonprofit Corporation. The fees for initial registration, as well as ongoing annual fees, are reduced. The government does keep a closer eye on a Nonprofit company, to ensure that it operates without personal gain to any of the company management. This does not mean salaries cannot be paid, but assets acquired by or donated to the company cannot then be given to the managers, rather, if and when a Nonprofit company closes its operations, the remaining assets are donated to another charity.

Limited Partnership: A Limited Partnership is typically set up for investment purposes. There must be a minimum of two persons involved, where one person must function as the manager of the company (called the “general partner”), and the other partner is the investor, who is the “limited partner”. Commonly though, there are many limited partners. The limited partner is restricted from his active involvement in the company. Only the general partner controls the daily business and the decision-making for the company’s operations. A limited partner cannot advise, object to, assist, approve or dissaprove of the general partner’s job as manager. The limited partner’s gain is usually a set rate of return on his financial investment in the company. Many real estate or pooled investment opportunities are constructed as a Limited Partnership. This is a rather specialized form of business, and not very many companies are actually formed and operated as limited partnerships for this reason.