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There are three basic forms of business organizations: Sole proprietorships, partnerships, and corporations. Hybrid forms are: Limited partnerships, S corporations, Limited liability companies, and limited liability partnerships. Sole proprietorships are taxed under the person's personal income taxes. Creditors have access to personal assets to collect any money owed.
Partnerships consist of two or more persons, but business income or loss is claimed on each partner's personal income taxes. Each partner is liable for his share of debt and responsibilities. A corporation is more complex and is controlled by three groups: the shareholders who elect the members of the board of directors, the directors who appoint officers, and the officers who manage the corporation.
S corporations are formed when shareholders of an organization elect to have their organization treated as a partnership for income tax purposes. The S corporation is just like a corporation but shareholders must claim their shares on their individual income tax returns.
An LLC is treated as a nontaxable entity for federal income tax purposes and share much of the same traits as corporations. - The business form of Limited Liability Company was first recognized in 1977 with Wyoming being the first state to allow such a business entity by law. By 1988, the Internal Revenue Service ruled LLCs as a nontaxable entity for federal income tax purposes.
- Limited Liability Companies (LLC) are formed much like a corporation. Articles of corporation must be filed with a state official in which business is conducted and the organizational form (LLC) must be referenced in the name of the business. Members are referred to as organizers rather than incorporators and an LLC must file annual reports with each state it conducts business in.
- LLCs consist of members rather than shareholders and an individual can have memberships in more than one LLC. Furthermore, should a member die or withdraw from the organization, the LLC is dissolved but remaining members can continue the business within 90 days pending the wording of the articles of corporation or agreement among remaining members. LLCs do not impose personal liability on their owners.
- State laws vary in reference to LLCs and may require unanimous approval of members for binding decisions. In most LLCs, members have equal rights in the decision-making process. In some instances, a minority member may have less control in the decision-making process but can file a lawsuit or sell his membership interest within the LLC.
