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Types of Entities
Sole proprietorship
A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest form of business organization. A sole proprietorship is not a legal entity separate and apart from its owner. The owner has unlimited liability with regard to the sole proprietorship. This means that the owner’s personal assets are exposed without limitation to any and all liabilities related to the business. Income or loss of the business
is reported by taxpayer on Schedule C of the owner’s form 1040. Net income is subject to 15.3% self employment tax
Partnership
A partnership is an unincorporated business owned by at least 2 individuals. Owners have unlimited liability with regard to the partnership. That means that generally owners can be held liable for the partnerships debts or liabilities unless they are limited partners. Partnership files a separate return on form 1065. A Partnership is a "pass thru" entity. That means that a partnership generally does not pay federal tax. Income or
loss is "passed thru" to partners and is taxed on each personal tax return - subject to 15.3% self employment tax.
Corporation
A corporation is a legal entity separate and distinct from its owners- shareholders. Shares of stock are evidence of ownership of a corporation owners’. Personal assets are generally protected from creditors. A Corporation files separate return on form-1120. Corporate income is not subject to 15.3% Self Employment tax. Income is taxed to the corporation first and then income is distributed to shareholders in the form of dividents it is taxed
a second time on the shareholders individual tax return. It’s commonly known as “double taxation” Eligible corporations can avoid double taxation by electing to be treated as an S corporation.
Corporation S
Corporation S has the same legal advantages as a regular Corporation. Corporation S reports income or loss on separate return on form 1120S. An S corporation is generally exempt from federal tax. This means that profits and losses generated by the corporation are passed thru to shareholders and added/reported on their personal tax returns.
Limited liabilityCompany
A limited liability company (LLC) is a legal entity formed under state law. Owners (called members) of the LLC are not personally liable for its debts An LLC may be classified for federal income tax purposes as a partnership, a "C" corporation, "S" corporation, or an entity disregarded for tax purposes.
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