BIZ-N-US ENTITY

KNOW YOUR

Sole Proprietorship

A sole proprietorship is an unincorporated business with only one owner. The owner is personally responsible for all aspects of the business and reports business income and expenses on their personal tax return.

Easy and Inexpensive Setup: Establishing a sole proprietorship is relatively simple and inexpensive compared to other business entities. There are minimal legal formalities and paperwork involved in setting up the business.
Full Control: As the sole owner, you have complete control over all business decisions and operations. You can make quick decisions without the need for consultation or consensus with partners or shareholders.
Direct Profits: You are entitled to all the profits generated by the business. There is no need to share the profits with partners or shareholders.
Flexibility: Sole proprietorships offer flexibility in terms of business operations, making it easier to adapt to changing market conditions or personal circumstances. You can make decisions quickly and implement changes without the need for extensive approvals.
Tax Benefits: Sole proprietors can benefit from certain tax advantages. The business income is reported on the owner's personal tax return, and any losses incurred can be offset against other personal income.

Limited Liability Company (LLC)

An LLC is a legal structure that provides limited liability protection to its owners, known as members. It is a separate legal entity from its owners, meaning that the members' personal assets are generally protected from the company's debts and liabilities.

Limited Liability: The main advantage of an LLC is that it offers limited liability protection to its members. This means that the members' personal assets are typically not at risk if the LLC faces financial difficulties or legal issues. However, it's important to note that personal guarantees or misconduct can still expose members to personal liability.
Flexibility: LLCs offer flexibility in terms of management and taxation. They can have a single member (single-member LLC) or multiple members. The members can choose to manage the LLC themselves or appoint managers to handle day-to-day operations.
Pass-Through Taxation: One of the key benefits of an LLC is its tax flexibility. By default, an LLC is treated as a "pass-through" entity for tax purposes. This means that the LLC itself does not pay federal income taxes. Instead, the profits and losses of the LLC are passed through to the members, who report them on their individual tax returns.
Operating Agreement: LLCs typically have an operating agreement, which is a legal document that outlines the ownership structure, management responsibilities, profit distribution, and other key provisions of the LLC. The operating agreement helps establish the rights and obligations of the members.
Limited Life: Unlike corporations, which can exist indefinitely, LLCs have a limited life. The duration of an LLC is typically specified in its operating agreement. If a member leaves or dies, the remaining members can decide whether to continue the LLC or dissolve it.
Credibility and Professionalism: Forming an LLC can provide a level of credibility and professionalism to a business. It may be seen as a more established and reputable entity, which can be beneficial when dealing with clients, partners, or investors.

Corporation

A corporation is a business entity that is created by filing the necessary documents with the appropriate government authority. It is a separate legal entity from its owners, meaning that the corporation itself can own assets, enter into contracts, and be held liable for its actions.

Limited Liability: One of the main advantages of a corporation is that it provides limited liability protection to its shareholders. This means that the shareholders' personal assets are generally protected from the company's debts and liabilities. Shareholders are typically only liable for the amount they have invested in the corporation.
Shareholders, Directors, and Officers: A corporation is owned by its shareholders, who elect a board of directors to oversee the company's operations and make major decisions. The board of directors appoints officers, such as the CEO, CFO, and other executives, who are responsible for the day-to-day management of the corporation.
Capital Structure: Corporations have a capital structure that includes authorized shares, issued shares, and outstanding shares. Authorized shares represent the maximum number of shares that the corporation is allowed to issue. Issued shares are the shares that have been sold to shareholders, and outstanding shares are the shares that are currently held by shareholders.
Double Taxation: One of the main disadvantages of a corporation is that it is subject to double taxation. This means that the corporation pays taxes on its profits, and then shareholders pay taxes on any dividends they receive. However, certain types of corporations, such as S corporations and certain types of LLCs, may be able to avoid double taxation.
Corporate Formalities: Corporations are subject to certain formalities, such as holding regular shareholder and board of directors meetings, keeping accurate financial records, and filing annual reports with the appropriate government authorities. These formalities help maintain the legal and financial integrity of the corporation.
Transferability of Ownership: Ownership in a corporation is typically represented by shares of stock, which can be easily transferred from one shareholder to another. This allows for greater flexibility in buying, selling, or transferring ownership interests in the corporation.

S Corporation

An S Corporation is a regular corporation (C Corporation) that has elected a special tax status with the Internal Revenue Service (IRS). This election allows the corporation to pass its income, losses, deductions, and credits through to its shareholders for federal tax purposes.

Pass-Through Taxation: One of the main advantages of an S Corporation is its pass-through taxation. This means that the corporation itself does not pay federal income taxes. Instead, the profits and losses of the S Corporation "pass through" to the shareholders, who report them on their individual tax returns. This avoids the issue of double taxation that C Corporations face.
Limited Liability Protection: Like regular corporations, S Corporations provide limited liability protection to their shareholders. This means that the personal assets of the shareholders are generally protected from the debts and liabilities of the corporation.
Shareholder Requirements: S Corporations have certain requirements regarding shareholders. For example, an S Corporation can have no more than 100 shareholders, and all shareholders must be individuals, certain trusts, or estates. Additionally, non-U.S. residents cannot be shareholders.
Corporate Formalities: S Corporations are subject to similar corporate formalities as regular corporations. This includes holding regular shareholder and board of directors meetings, keeping accurate financial records, and complying with state and federal regulations.
Tax Considerations: While S Corporations offer tax advantages, it's important to note that shareholders of an S Corporation must pay themselves a reasonable salary, subject to payroll taxes. The remaining profits can be distributed as dividends, which are not subject to self-employment taxes.
Conversion from C Corporation: It is possible for a regular C Corporation to convert to an S Corporation by filing Form 2553 with the IRS. However, there are specific eligibility requirements and certain tax implications to consider before making this conversion.

Nonprofit

A nonprofit organization, often referred to as a nonprofit or not-for-profit organization, is a type of organization that is formed for purposes other than making a profit. Here are some key points about nonprofits:

Mission and Purpose: Nonprofits are established to pursue a specific mission or purpose that benefits the public, a specific group of individuals, or a particular cause. This can include charitable, educational, scientific, religious, or social purposes.
Non-Distribution Constraint: Unlike for-profit businesses, nonprofits are restricted in their ability to distribute profits to individuals or shareholders. Instead, any surplus funds generated by the organization are reinvested back into fulfilling its mission and supporting its programs and initiatives.
Tax-Exempt Status: Nonprofits often seek tax-exempt status from the government, which means they are not required to pay certain taxes, such as federal income tax, on their income. Donations made to tax-exempt nonprofits are also often tax-deductible for the donors.
Governance Structure: Nonprofits typically have a board of directors or trustees who oversee the organization's activities and ensure it operates in accordance with its mission and legal obligations. The board is responsible for strategic decision-making, financial oversight, and ensuring accountability.
Fundraising and Donations: Nonprofits rely on fundraising efforts and donations from individuals, corporations, foundations, and government entities to support their programs and operations. These funds are used to further the organization's mission and provide services to the community or target beneficiaries.
Reporting and Transparency: Nonprofits are often required to file regular reports with the appropriate government agencies, such as the Internal Revenue Service (IRS) in the United States. These reports provide information on the organization's finances, activities, and governance, ensuring transparency and accountability.
Volunteer and Community Engagement: Nonprofits often rely on volunteers who contribute their time, skills, and expertise to support the organization's mission. Community engagement and involvement are key aspects of nonprofit work, as they help build partnerships, raise awareness, and mobilize resources.