The following identifies the various business entity formations and characteristics of each.
Limited liability company (LLC*) – A business structure that blends some characteristics of a partnership and a corporation. Liabilities are limited to the owner’s agreed investment in the business. A LLC is an entity formed under state law by filing articles of organization. None of the members of an LLC are personally liable for the business’s debt. An LLC is not necessarily a corporation. The LLC concept came about to provide added risk limitations that a corporation (e.g. Sub Chapter S) did not always provide. Business formations can be set up as: Partnership LLC, Sole Proprietorship LLC, S Corp LLC.
Limited liability partnership (LLP*) – A hybrid form of a general partnership.
Limited partnership (LP*) – A form of partnership in which liabilities are limited to general partners, while limited partners’ liabilities are limited to their agreed investment in the business.
S Corporation – An eligible domestic corporation that can avoid double taxation (once to the corporation and again to the shareholders and/or employees). This business structure is exempt from federal income tax other than tax on certain capital gains and passive income. The income passes through to individual shareholders and is taxed at the individual level. An additional requirement is to obtain a Federal Employer Identification number. According to federal guidelines, to obtain a S Corporation status federal Form 2553 must be filed with the Internal Revenue Service. Tax filing requires IRS Form 1120S.
Sole Proprietorship – A person who conducts business for profit. The sole owner assumes complete responsibility for all liabilities and debts of the business. Sole proprietorships may be required to register with State Departments of Revenue. Tax filing requires IRS Form Schedule C.
Partnership – Two or more individuals that own a for-profit business. All partners are responsible for the liabilities and debts of the partnership. Tax filing requires IRS Form 1065.
*Limited liability partnership, limited liability companies and limited partnerships are unincorporated entities, but are still considered formally organized entities.