small business

A C corporation (or C-corp) is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation. 

Corporations pay corporate taxes on earnings before distributing remaining amounts to the shareholders in the form of dividends. Individual shareholders are then subject to personal income taxes on the dividends they receive. Although double taxation is an unfavorable outcome, the ability to reinvest profits in the company at a lower corporate tax rate is an advantage.  

A Subchapter S (S Corporation) is a form of corporation that meets specific Internal Revenue Code requirements. The requirements gives a corporation with 100 shareholders or fewer the benefit of incorporation while being taxed as a partnership. The corporation may pass income directly to shareholders and avoid double taxation. Requirements include being a domestic corporation, not having more than 100 shareholders, which includes only eligible shareholders, and having only one class of stock. 

Establishing an S corporation may help establish credibility with potential customers, employees, suppliers, and investors by showing the owner’s formal commitment to the company. Also, the S corporation does not pay federal taxes at the entity’s level. Saving money on corporate taxes is beneficial, especially when a business is newly established. Other advantages include the transfer of interests in an S corporation without facing adverse tax consequences, ability to adjust property basis, and complying with complex accounting rules.

Shareholders can be company employees, earn salaries, and receive corporate dividends that are tax-free if the distribution does not exceed their stock basis. If dividends exceed a shareholder's stock basis, the excess is taxed as capital gains. Characterizing distributions as salary or dividends may help the owner reduce liability for self-employment tax while generating business-expense and wages-paid deductions. 

Not for profit describes a type of organization that does not earn profits for its owners. All of the money earned by or donated to a not-for-profit organization is used in pursuing the organization's objectives and keeping it running. Typically, not-for-profit organizations are tax-exempt charities or other types of public service organizations, and as such, they are not required to pay most taxes. To achieve tax-exempt status, the organization needs to request 501(c)(3) status from the Internal Revenue Service (IRS). If desired, the not-for-profit can also opt to incorporate. Once registered and running, the organization has to maintain compliance with the appropriate state agency regulating charitable organizations.

Thanks to their tax-exempt status, not-for-profit organizations are not subject to most forms of taxation, including sales tax and property taxes. (Donations made to a tax-exempt, not-for-profit organization may also be tax deductible for the donor.) If a church, for example, is established as a not-for-profit organization, it does not pay property taxes on the house of worship it owns. Similarly, if a not-for-profit charity accepts clothing donations, sells the clothing and uses the money for its charitable purposes, it does not pay property tax on the building it uses as its store.

However, not-for-profit organizations must remit payroll taxes on behalf of their employees. Similarly, the employees and directors who receive income from a not-for-profit must report the income to the IRS.

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence.  This is a great structure for financial investors who are not involved in the day to day operations. 

An LLC, also known as a Limited Liability Company, provides a flexible compromise between a general business form and a corporation. It's one of the most adaptable of the business forms recognized in the United States, and it is one of the most popular for small business owners. 

An LLC company can either be made up of a single individual, a partnership, a group of individuals, or a corporation. Regardless of the number involved, it generally receives pass-through taxation rates as well as limited liability. The owners of the LLC can choose to apply for different taxation schemes, depending on their preference. All requests must be made to the IRS, and they cannot be altered until the IRS gives a formal approval. The default taxation for an LLC depends on how it's structured. Most of the time, the base group form decides the default taxation. In other words, if an individual forms an LLC, it's taxed as a sole proprietorship. If a partnership forms an LLC, it's taxed as a partnership. If a corporation forms an LLC, it's taxed as a corporation.

A general partnership definition is “two or more people that have agreed to engage in business practices for the purpose of profit.” Properly forming a partnership will require that the following is met:

• The partnership includes two or more people
• All partners agree to any liability that their partnership may face
• Proof that an agreement is made
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It is possible for you to form a partnership orally, but oral partnerships do not provide proof that will be necessary if any legal consequences are faced. Instead, a Partnership Agreement should be used to clearly define a partnership.