If you do not know which category your company falls under, this article discusses different company types and what they mean.
A corporation is a type of business that is treated as separate from the business owners and deemed as its legal entity. It is owned by a group of shareholders who purchase stocks/shares of the company. This type of company grants the owners unlimited liability over any liabilities and debt.
An S-corporation is a type of corporation (legal entity) that is taxed similarly to a partnership/sole proprietorship. It also provides limited liability protection due to its classification as a corporation.
They are not double-taxed as a corporation and a partnership. Rather, the profits and losses are transferred and recorded on the personal shareholders’ tax returns. Each individual is then taxed separately on that amount according to their tax rates. To be eligible for an S-corp, all shareholders must be residents or citizens of the United States.
A limited liability company (LLC) is a legal structure that protects its members from any debts or liability that the company may accrue. LLCs are popular among small business owners due to their tax advantages and protection from liability.
Much like S-corp, an LLC combines the advantages of both corporations and partnerships. With an LLC, members are flexible to choose their preferred tax treatment–sole proprietorship, partnership, or an S-corporation.
A partnership refers to a business which is owned by two or more people. This company type is common among small and medium business owners. Each partner shares ownership of the company and is equally liable for any debts and liabilities the company incurs.
5. Sole Proprietorship
A sole proprietorship is a company that is owned by one single owner which is called the “sole proprietorship. There are no shareholders or partners involved in this type of company. The owner takes responsibility for all the company’s debts and liabilities. This means there is unlimited liability.
If you find that your company does not fall under any of the above categories, you can choose to put it under ‘other.’ You will be able to find your company type by referring to your business’ corporate registry or by referring to your company’s tax return.