Wjhat structure is best for my business?

You may operate your business under one of many organizational structures generally chosen for liability and tax reasons. The most common organizational structures for “for profit” businesses are sole proprietorships, general and limited partnerships, “C” and “S” corporations, and limited liability companies.

Each structure offers unique tax and liability benefits appropriate for different personnel situations. If you’re uncertain where to start, contact SCORE for free counseling and your attorney and accountant for assistance. Here's an overview get you started:
Sole Proprietorship – One person operating a business as an individual is a sole proprietorship. It is the most common form of business organization. Profits are taxed as income to the owner personally. The personal tax rate is usually lower than the corporate tax rates. The owner has complete control of the business, but faces unlimited liability for its debts. There is very little government regulation or reporting.
General Partnership – A partnership exists when two or more persons join together in the operation and management of a business. Partnerships are subject to relatively little regulation and are fairly easy to establish. A formal partnership is recommended to address potential conflicts such as who will be responsible for performing each task; what, if any, consultation is needed between partners before major decisions, what happens when a partner dies, and so on. Under a general partnership each partner is liable for all debts of the business. Profits are taxed as income to the partners based on their ownership percentage.
Limited Partnership – Like a general partnership, this is established by an agreement between two or more individuals. However, there are two types of partners.
· A general partner has greater control in some aspects of the partnership. For example, only a general partner can decide to dissolve the partnership. General partners have no limits on the dividends they can receive from profit so they incur unlimited liability.
· Limited partners can only receive a share of profits based on the proportional amount on their investment, and the liability is similarly limited in proportion to their investment.
“C” Corporation – A “C” corporation is a legal entity made up of persons who have a charter legally recognizing the corporation as a separate entity having its own rights, privileges, and liabilities, apart from those of the individuals forming the corporation. It’s the most complex form of business organization and is comprised of shareholders, directors, and officers. The corporation can own assets, borrow money, and perform business functions without directly involving the owners. Corporations are subject to more government regulation and have the advantage of limited liability, but not total protection from lawsuits.
Subchapter “S” Corporation – This is a special section of the Internal Revenue Code and permits a corporation to be taxed as a partnership or sole proprietorship, with profits taxed at the individual, rather than the corporate rate. A business must meet certain requirements for Subchapter “S” status. Contact SCORE for free counseling, the IRS, and your accountant for additional information.
LLCs and LLPs – The limited liability company is a popular business form. It combines selected corporate and partnership characteristics while still maintaining status as a legal entity distinct from its owners. As a separate entity it can acquire assets, incur liabilities and conduct business. It limits liability for the owners. LLC owners risk only their investment, not personal assets. The limited liability partnership is similar to the LLC, but it is aimed at professional organizations.

Contact SCORE for information concerning organizational structures for non-profit organizations.

Richard Strug
Greater Princeton Area SCORE (Chapter 631)
Serving Mercer and Middlesex Counties