by Sole Proprietorships
Sole proprietorship is the simplest organizational structure available for businesses, according to Entrepreneur magazine. According to the IRS, it is the most common form of business in the U.S. Businesses structured as a sole proprietorship allows the owners to have total control over company operations. Businesses that typically form sole proprietorships are home-based businesses, shop or retail businesses and one-person consulting firms.
Owners of sole proprietor businesses are responsible for their own record keeping and paying the IRS in the form of self-employment taxes. However, this type of business provides no protection for business owners, as they can be held personally responsible for their company’s debt and financial obligations.
Out of the Different Corporate Structures in the USA, when a business is incorporated as a sole proprietorship, it allows the owners of such business to have total control over company operations and management. The types of companies that typically form Sole Proprietorships in the USA are a shop or retail businesses, and one-person consulting firms, and home-based businesses.
Partnerships
A partnership is formed when two or more people join, or partner, together to run a business, explains Knew Money.com. Each partner has equal share in the net profits and losses of their business. Like a sole proprietor, each partner reports their income on their personal tax return and pays self-employment taxes to the IRS.
They are also personally liable for financial debt and obligations of their company and also the actions of other partners. Although partnerships can be formed through oral agreements and handshakes, written agreements can be the best option in the event of disputes or lawsuits between partners.
The agreement of Partnership is required to state in detail how the profits and losses are to be distributed among partners. If any written agreement is not created by the partners, then the law of Partnership laws of the state will govern the operations of the Partnership. Making the Partnership agreement will allow the partners of the Partnership an opportunity to clearly spell out the expectations that they have from each other while working.
There are three kinds of Different Partnership Corporate Structures in the USA, which are as follows:
- General Partnership
- Limited Partnership
- Joint Venture
Corporations
The most complex organizational structure for businesses is the corporation. This type of business structure separates the liabilities and obligations incurred by company operations from being the responsibility of the owners. Corporations are regulated by the laws of the state they are set up in.
Unlike sole proprietor and partnership businesses, corporations are taxed as separate entities at corporate tax rates. The IRS taxes corporation owners at individual tax rates. There are two common types of corporation structures: Subchapter C and S. The different between the two subchapters stem from different tax rules. Ordinary corporations are considered Subchapter C corporations.
Subchapter S corporations, unlike Subchapter C companies, can pass income and losses onto their shareholders to avoid paying federal income taxes. This prevents double taxation of corporation profits.
Corporation
The advantages of Corporation in the USA are as follows:
- A Corporation that is publicly held can raise substantial amounts of capital by issuing bonds or selling shares.
- The shareholders of a Corporation in the USA are only liable up to the amount of their investments in it.
- The ownership can be easily transferred to a Corporation in the USA.
- There is no limit to the life of a Corporation in the USA. The ownership of Corporations can pass through many generations of investors or members.
- In the case a Corporation is structured as an S Corporation, losses and profits are passed through to the members or shareholders. Hence, the Corporation is not required to pay the income tax.
