Business entities can be defined as the corporate, tax and legal structures which an organization chooses to officially follow at the time of its official registration with the state authorities. In total, there are fifteen different types of business entities, which would be the following.
- Sole Proprietorship
- General Partnership
- Limited Partnership or LP
- Limited Liability Partnership or LLP
- Limited Liability Limited Partnership or LLLP
- Limited Liability Company or LLC
- Professional LLC
- Professional Corporation
- Nonprofit Organization
- Cooperative Organization
As estates, municipalities and nonprofits do not concern the main topic here, the following discussions will exclude the three.
Importance of the State: The Same Corporate Structure Will Vary from State to State
All organizations must register themselves as entities at the state level in United States, so the rules and regulations governing them differ quite a bit, based on the state in question.
What this means is that a Texas LLC for example will not operate under the same rules and regulations as an LLC registered in New York. Also, an LLC in Texas can have the same name as another company that is registered in a different state, but it's not advisable given how difficult it could become in the future while filing for patents.
To know more about such quirks and step-by-step instructions on how to start an LLC in Texas, visit howtostartanllc.com, and you could get started with the online process immediately. The information and services on the website are not just limited to Texas LLC organizations either, but they have a dedicated page for guiding fresh entrepreneurs through the corporate tax structures in every state.
Sole Proprietorship: Default for Freelancers and Consultants
There is only one owner or head in a sole proprietorship, and that's what makes it ideal for one-man businesses that deal with freelance work and consulting services. Single man sole proprietorships are automatic in nature, therefore, registration with the state is unnecessary.
Sole proprietorships are also suited to a degree for singular teams such as a small construction crew, a group of handymen, or even miniature establishments in retail. Also, this puts the owner's personal financial status at jeopardy.
Due to the fact that a sole proprietorship entity puts all responsibilities for paying taxes and returning loans, it directly jeopardizes the sole proprietor's personal belongings in case of a lawsuit, or even after a failed loan repayment.
This is the main reason why even the most miniature establishments find LLCs to be a better option, but this is not the only reason either. Sole proprietors also find it hard to start their business credit or even get significant business loans.
General Partnership: Equal Responsibilities
The only significant difference between a General Partnership and a Sole Proprietorship is the fact that two or more owners share responsibilities and liabilities equally in a General Partnership, as opposed to there being only one responsible and liable party in the latter. Other than that, they more or less share the same pros and cons.
Registration with the state is not necessary in most cases, and although it still puts the finances of the business owners at risk here, the partnership divides the liability, making it a slightly better option than sole proprietorship for small teams of skilled workers or even small restaurants and such.
Limited Partnership: Active and Investing Partners
A Limited Partnership (LP) has to be registered with a state and whether it has just two or more partners, there are two different types of partners in all LP establishments.
The active partner or the general partner is the one who is responsible and liable for operating the business in its entirety. The silent or investing partner, on the other hand, is the one who invests funds or other resources into the organization. The latter has very limited liability or control over the company's operations.
It's a perfect way for investors to put their money into a sector that they are personally not experienced with, but have access to people who do. From the perspective of the general partners, they have similar responsibilities and liabilities to those in a general partnership.
It's the default strategy for startups to find funding and as long as the idea is sound, it has made way for multiple successful entrepreneurial ventures in the recent past. However, personal liability still looms as a dangerous prospect for the active partners to consider.
Limited Liability Company and Professional LLC
Small businesses have no better entity structure to follow than the LLC, given that it takes multiple good ideas from various corporate structures, virtually eliminating most cons that are inherent to them. Any and all small businesses that are in a position to or are in requirement of signing up with their respective state, usually choose an LLC entity because of the following reasons:
- It removes the dangerous aspect of personal liability if the business falls in debt or is sued for reparations
- The state offers the choice of choosing between corporation and partnership tax slabs
- The limited legalities and paperwork make it suited for small businesses
While more expensive than a general partnership or a sole proprietorship, a professional LLC is going to be a much safer choice for freelancers and consultants, especially if it involves risk of any kind. This makes it ideal for even single man businesses such a physician's practice or the consultancy services of an accountant.
B, C and S-Corporation
By definition, all corporation entities share most of the same attributes and as the term suggests, they're more suited for larger or at least medium sized businesses in any sector. The differences between the three are vast once you delve into the tax structures which govern each entity.
However, the basic differences can be observed by simply taking a look at each of their definitive descriptions, as stated below.
C-Corporation – This is the default corporate entity for large or medium-large businesses, complete with a board of directors, a CEO/CEOs, other executive officers and shareholders.
The shareholders or owners are not liable for debts or legal dispute settlements in a C-Corporation, and they may qualify for lower tax slabs than is possible in any other corporate structure. On becoming big enough, they also have the option to become a publicly traded company, which is ideal for generating growth investments.
B- Corporation – the same rules apply as a C-Corporation, but due to their registered and certified commitment to social and environmental standards maintenance, B-Corporations will have a more lenient tax structure to deal with.
S-Corporation – Almost identical to a C-Corporation, the difference is in scale, as S-Corporations are only meant for small businesses, general partnerships and even sole proprietors. The main difference here is that due to the creation of a pass-through entity, aka a S-Corporation, the owner/owners do not have liability for business debt and legal disputes. They also are not taxed on the corporate slab.
Cooperative: Limited Application
A cooperation structure in most cases is a voluntary partnership of limited responsibilities that binds people in mutual interest - it is an inefficient structure due to the voluntary nature of its legal bindings, which often makes it unsuitable for traditional business operations. Nevertheless, the limited liability clause exempts all members of a cooperative from having personal liability for paying debts and settling claims.
This should clear up most of the confusion surrounding the core concepts and their suitability. In case you are wondering why the Professional Corporation structure wasn't mentioned, then that's because it has very limited applications. Meant for self-employed, skilled professionals or small organizations founded by them, they have less appeal now in comparison to an LLC or an S-Corporation.
As the CEO of JOOR, the leading platform for wholesale business management, I spend my days immersed in the fashion industry. I'm used to weighing in on things like technology decisions, e-commerce trend, and the importance of real-time data.
But I'm also a citizen, a woman, and a mom. As such, I'm affected by what goes on in the world around me.
In December, I watched grisly reports about Jersey City with despair, as gun violence is something I've been profoundly concerned about since the devastating events at Sandy Hook. This year marks the seventh anniversary of Sandy Hook, and heart-wrenchingly, these poor children have now been gone longer than they were alive.
Sadly, these events are far too common in the United States. Every year nearly 1,300 children are killed and 5,800 injured by guns in this country, according to a report issued by the Centers for Disease Control and Prevention in 2017.
Translation? About 19 American children are shot on average every single day. As a mother and as a professional, I am absolutely appalled that nothing is being done to stop this terrifying trend.
I think about this when I sit down with my family for dinner each night. Frankly, the idea of my kids facing an armed shooter at school or in any public place is terrifying to me. And it's terrifying to them.
It may not be in my job description, but as a business leader, I have a responsibility to speak out on what is clearly a humanitarian issue. My feelings on this issue have nothing to do with politics. I'm disturbed that this has become such a partisan issue. I simply don't want to live in a country where 19 children are gunned down every day of the year, and I can't believe anyone else does either.
We're now seeing a trend of corporate leaders owning their power and responsibility by becoming social leaders as well. Peter Horst, consultant and founder of CMO Network, recently said that "in a world where they no longer expect the government to fix things, people are turning to Corporate America to step in and do some good."
Business Roundtable even supported this trend by expanding their "statement on the purpose of the corporation." The document now says that along with shareholders, companies should also consider employees, customers and the community as stakeholders whose interests should be included in decision-making. These are the people who are sending their children to school all over the country today. Just as I send my kids off each morning. It is refreshing that businesses are getting involved to advocate on their employees' behalf.
Along the same lines, I'm especially heartened to see private sector leaders taking action on the issue of gun control. In September 2018, Chip Bergh, CEO of Levi Straus & Co., pledged more than $1 million to American nonprofit organizations dedicated to ending gun violence. Bergh made this decision in spite of the risk that it could alienate consumers; the moral stakes were too high.
I applauded Walmart's decision to end the sale of handguns and handgun ammunition as well as their request to stop open carry in their stores. And I was moved by Dick's Sporting Goods' destruction of over $5 million in military-style, semi-automatic rifles. Both actions came after the horrific shootings last August in El Paso and Southaven.
Despite all these signs of hope and progress, we are not moving forward nearly fast enough on the issue of gun control. Other than a few states passing red flag laws, little to nothing has really been accomplished, and now Jersey City is just another gruesome reminder.
If we, as a country, are serious about stopping mass shootings, we have to disengage from partisan politics and commit to truly protecting our families and communities from gun violence. With so much media coverage and debate, it's shameful we've made so little progress in solving the problem.
We know that gun deaths and injuries can be reduced, because we've seen it happen in other places. Yes, cultures vary, and each country must develop solutions that are unique to its own specific cultural context. But we can learn from nations like Australia, Britain, Norway, and Japan.
Research institutions can provide unbiased help moving forward. For example, the Rockefeller Institute conducted an in-depth study on mass shootings and developed a list of 19 strategies for intervention based on its findings. Each and every one of us must learn about gun laws in our states and advocate for strong research-based legislation that will make the changes we so desperately need.
It's time to set aside partisan fighting, roll up our sleeves, and craft solutions that allow our families to feel safe going to school, church, the market, or any other public place. It's time to take the Sandy Hook Promise, something I did after marching with the organization, and help them fulfill their mission:
"I promise to do all I can to protect children from gun violence by encouraging and supporting solutions that create safer, healthier homes, schools, and communities." - Sandy Hook Promise