This is a brief description of some business organizations and terminology. Please remember to consult with a qualified attorney and accountant to see which structure best fits your needs.
Sole Proprietorship is a business owned by one person without organizing an entity. This is the simplest form of doing business.
Partnership is an association of two or more persons in order to operate a business.
General Partnership is an association of two or more persons in order to operate a business. No written agreement is required, but is advised. A partnership is not a separate entity for liability or tax purposes. All loss and income is flowed-through to each partner even if the partnership does not distribute any assets. Personal assets are not protected. All partners can bind the partnership.
Limited Liability Partnership allows for protection of personal assets. Limited partners are passive investors who can’t bind the limited partnership and do not participate in the control of the business. At least one partner must remain a general partner with unlimited liability. A flow-through tax method is used.
Corporation is a separate legal entity and is managed by its offices and directors. Shareholders own the stock in the corporation. Corporations may be private or publicly owned. Shareholders are not personally liable for the debts of the company beyond their capital contribution.
B Corporation is a hybrid of a “for-profit” and a “nonprofit” corporation. B Corporations are allowed to seek profits while still providing benefits to societies.
S Corporation is taxed under Subchapter S of the Internal Revenue Code. Subchapter S allows the corporation to choose to be taxed as a pass-through entity (like a partnership). If all shareholders provided written consent the corporation will not be taxed as if they are separate taxpayers, but instead as shareholder income, if income is distributed. Limit to 100 shareholders and only certain entities/people may own shares.
C Corporation is taxed under Subchapter C of the Internal Revenue Code. Profits are taxed at a corporate level and then taxed again to the shareholders or owners as dividends.
Limited Liability Company provides limitation of liability but provides members to be taxed like a flow-through partnership according to the interest the members own. The members may also decide to be tax as a corporation. Members are the owner and there are managers who manage the company. The managers may also be owners. Members are not liable for the business liabilities.
Doing Business As is the operating name of a company rather than the legal name of the company. Doing Business As may register their name with the State.
Nonprofit Company does not declare a profit and uses all profit (after expenses) for a public benefit. There are 26 types of nonprofits recognized by the IRS including the most common one a 501 ( c ) (3). The IRS provides a tax exemption number which allows the company to be exempt from paying state and local sales tax, property, tax and taxes on other assets.
Foreign Corporation is registered to do business in a state other than where it was originally incorporated.
Benefit Corporation or B Corporation is a hybrid of a “for-profit” and a “nonprofit” corporation. B Corporations are allowed to seek profits while still providing benefits to society.
Articles of Incorporation these are primary rules directing the management of the corporation and control over any terms of the bylaws.
Board of Directors is a group of individuals who are to protect the shareholder’s assets and owe a fiduciary duty to the shareholders. These individuals are either elected or appointed to oversee the activities of the company as outlined in the By-laws.
Bylaws guide the management and corporate by setting forth rules to operate by.
Franchises is a business you can buy that has a brand name. There is a brand owner and the local operator are bound by a contractual relationship.
Incorporation is created by filing the Articles of Incorporation which creates a separate and distinct entity from the owners.
Minutes notes of the shareholder’s meetings which normally occur once a year.
Officers manage the day to day activities of the company. Normally consist of a President, Vice President, Secretary, and Treasurer.
Operating Agreements is used in a LLC which outlines the LLC’s business, members’ financials, and managerial rights and dies.
Registered Agent is the person who lives in that state where the company is incorporated that will serve as the person to communicate with and accept service of process if the corporation is sued.
Shareholders is any person, corporation or entity that owns as least one share of a company’s stock. Normally the stock certificate will have that person’s name on it.
Stock is an ownership share of a company.
Succession Planning is a plan that will outline who will take over your business if you are incapacitated or you pass away.