Legal Business Structures
Sole Proprietorships
Simplest type of organization. It allows the single owner to have sole control and responsibility. Income can be reported on a Schedule C with the normal Federal Form 1040. Advantages are: less paperwork, few legal restrictions and can dissolve business easily. Disadvantages are: Personally liable for all business debts, can be harder to raise capital and business will terminate on owners death.
Partnerships
General - Two or more people are involved. Formed by an agreement entered into be each partner. Can be verbal but should be written. Advantages: easy to establish, each partner brings their own strengths, profits are taxed to owners only. Disadvantages include: personally liable for the firms debts and liabilities, any partner can commit the partnership to debt and partners inability to work together.
Limited - It is formed by two or more persons having one or more general partners and one or more limited partners. The limited partners have limited exposure to liability and are not involved in the day to day operations of the limited partnership.
Limited Liability Partnership - The effect of this is to provide general partners with additional protection from liability.
Corporations
These are the most complicated forms of business organizations. There is extensive work in keeping a corporation alive. Annual reports must be filed in the majority of states, a corporate minute book must be kept up and there are close regulations. On the positive side, liability is limited to the amount owners have paid for the stock owned and the corporation will continue when stockholders die.
S Corporations - Small corporations are those closely held. They are only taxed at the owner level and provide the limited liability. There are restriction on the type of owners.
C Corporations - Unlimited owners but double taxation (corporation pays on its income and the stockholders pay on their dividends).