Entity Types
What are the different entity types?
Sole Proprietorship
- Operates under the control of one individual. (hence sole-)
- The individual receives all profit and benefits.
- The owner pays income tax and a 15.3% self-employment tax.
- Responsible for the taxes and liabilities of the company.
- The organization will cease to exist if the owner dies.
- No asset protection. The owner’s assets may be at risk.
- Form 1040, U.S. Individual Income Tax Return
Limited Liabilities Company (LLC)
- These companies act as separate entities from owners.
- Corporate veil protection (the owners’ investments and liabilities are separate and are not apart of the company)
- Pass-through tax (which avoids double taxation).
- The owners have control over how they want to be taxed as a corporation or as individuals on their personal taxes.
S Corporation
- Can hold up to 75 shareholders, not over 100.
- Pass-through tax. (Form 1120S), but no income tax is paid at the corporate level.
- Files own tax returns.
- Profit and losses are passed through to shareholders.
- Besides fraud, shareholders are not responsible for liabilities.
C Corporation
- Independent group with an unlimited amount of shareholders.
- File a corporate tax return (Form 1120)
- Pay taxes at a corporate level. They also face the possibility of double taxation (if corp. income is divided into shareholders)
- Under the law, they are required to hold yearly meetings while recording meeting minutes.
- Must comply with government rules and regulations when it comes to documentation.
