Business Structures

Question 1

Sole proprietorship

Answer 1

Definition: Owned and operated by one person with no distinction between the business and the owner

Taxation: Income reported on the owner’s personal income tax return

Personal liability: Unlimited liability

Question 2

Partnership

Answer 2

Definition: Owned by two or more people who share responsibilities and profits; types of partnerships include general partnerships, limited liability partnerships, and limited partnerships

Taxation: Tax obligation shared between partners; income reported as profit and loss on the owners’ personal income tax returns

Personal liability: Unlimited liability

Question 3

Corporations

C-Corp

Answer 3

Definition: A full independent business where the owners, or shareholders, are separate from other business entities

Taxation: Double taxation; profits taxed at the corporate level and at the personal level

Personal liability: Limited liability

Question 4

LLC (Limited Liability Company)

Answer 4

Definition: Combines elements of a corporation and a partnership

Taxation: Profits and losses reported as personal income without paying corporate taxes

Personal liability: Limited liability

Question 5

S-Corp

Answer 5

Definition: Corporations that pass income, losses, deductions, and credits to shareholders without having to pay federal corporate taxes

Taxation: Individual shareholders split income and report it on their own personal tax returns

Personal liability: Limited liability