What types of business organizations are there? Here are the ways you can incorporate in the US

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  1. 导言
  2. Sole proprietorship
  3. Partnership
  4. Limited liability company (LLC)
  5. C corporation (C corp)
  6. S corporation (S corp)
  7. Nonprofit corporation
  8. How Stripe can help
    1. The Stripe Atlas application
    2. Forming the company in Delaware
    3. Getting your IRS tax ID (EIN)
    4. Purchasing your shares in the company
    5. Filing your 83(b) tax election
    6. Partner perks and discounts

The corporate structure that new business owners choose determines the legal, financial, and operational requirements of the business, as well as the amount of control and liability the owners have. With so much at stake, new business owners have to understand the various types of corporate structures and choose the one that best accommodates their specific goals. Here’s an overview of the most common types of corporations.

What’s in this article?

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)
  • C corporation (C corp)
  • S corporation (S corp)
  • Nonprofit corporation

Sole proprietorship

A sole proprietorship is the simplest type of business structure, where one person owns and operates the business. This structure provides total control and flexibility for the owner, but it also exposes them to unlimited personal liability for the business’s debts and obligations.

Here are important details to know about sole proprietorships:

  • Unlimited personal liability
    A sole proprietorship does not create a separate legal entity from the owner, which means that the owner is personally liable for all the business’s debts and obligations. This includes lawsuits, damages, and any other legal claims that may arise.

  • Taxation
    The business income is reported on the owner’s personal income tax return, and they are responsible for paying all taxes owed on the business income. The owner must also pay self-employment taxes on the net income of the business.

  • Control and flexibility
    The sole proprietor has unmitigated control and decision-making power over every part of the business. They can make decisions quickly without having to consult with partners or shareholders.

  • Capital and financing
    Since a sole proprietorship is a one-person business, it may be difficult to obtain financing or attract investors. The owner frequently has to rely on personal savings, loans, or credit to fund the business’s operations.

  • Lack of perpetual existence
    A sole proprietorship may cease to exist upon the death or incapacity of the owner. The business assets and liabilities are then transferred to the owner’s heirs or estate.

  • Record keeping
    Sole proprietors are responsible for keeping accurate records of all financial transactions and maintaining separate bank accounts for the business, which helps to separate business and personal finances and simplify tax reporting. But sole proprietors do have the option of working with financial professionals to help manage these concerns.

Sole proprietorships can be a good option for small businesses or individuals who want to start a business without the formalities of other business structures.

Partnership

A partnership is a business structure where two or more people share ownership of the business. Here are a few key points to know about partnerships:

  • Types of partnerships
    There are two main types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners have equal control and are responsible for the business’s financial and legal obligations. In a limited partnership, there are general partners who have unlimited liability and limited partners who invest in the business but have limited liability.

  • Shared profits and losses
    Partnerships are based on shared profits and losses. The profits are distributed among the partners according to the partnership agreement, while the losses are shared by the partners according to their percentage of ownership.

  • Legal liability
    Partnerships do not create a separate legal entity from the partners, and each partner is personally liable for the business’s debts and obligations. This means that each partner may be required to use their personal assets to pay off business debts.

  • Partnership agreement
    It’s important to create a partnership agreement that outlines the terms of the partnership, including each partner’s role and responsibilities, profit distribution, the decision-making process, and how disputes will be resolved.

  • Taxation
    Partnerships do not pay taxes on their profits. Instead, each partner is responsible for reporting their share of the partnership income on their personal tax return and paying taxes on it. Partnerships are also required to file an informational tax return with the IRS.

  • Capital and financing
    Partnerships can be a good option for businesses that require more capital than a sole proprietorship can provide. Partners can contribute funds to the business, and the partnership can also take on debt.

Limited liability company (LLC)

An LLC is a hybrid business structure that combines the liability protection of a corporation with the tax benefits of a partnership. LLCs are a popular choice for businesses because they offer limited liability protection, pass-through taxation, and a high degree of flexibility in a number of areas.

Here are a few important points to know about LLCs:

  • Limited liability
    One of the biggest advantages of an LLC is that it provides limited liability protection to its owners, also known as members. This means that members are typically not personally liable for the business’s debts and obligations. There are exceptions, such as when members personally guarantee loans or act illegally or unethically.

  • Pass-through taxation
    LLCs are taxed similarly to partnerships. This means that the business does not pay federal income taxes; instead, the company’s profits and losses are passed through to its members, who report their share of the income or loss on their personal income tax returns. This helps to avoid double taxation.

  • Management and control
    LLCs offer a great deal of flexibility in terms of management and control. Members can choose to manage the business themselves, or they can appoint a manager to oversee operations. Additionally, LLCs can have a single member or multiple members, which means they can be owned by an individual or a group of people.

  • Operating agreement
    An LLC should have an operating agreement that outlines the company’s internal management, ownership, and decision-making process. This document can prevent disputes and misunderstandings between members and be customized to meet specific business needs.

  • Capital and financing
    LLCs can issue ownership interests to raise capital and take on debt like a corporation. They can also issue different classes of ownership interests to provide for different levels of control or economic rights.

  • Perpetual existence
    LLCs can continue to exist beyond the departure or death of any one member. This means that the LLC can provide continuity and stability to the business beyond the scope of the involvement of its founders.

C corporation (C corp)

A C corporation, or “C corp,” is a legal entity that is separate from its owners, providing limited liability protection to its shareholders. It is the most common type of corporation and is required to pay taxes on its profits. This structure is suitable for larger businesses with multiple shareholders, as it allows for unlimited growth potential and access to capital.

Here are a few important aspects of C corps to know:

  • Limited liability protection
    C corps offer limited liability protection to their shareholders; shareholders’ personal assets are typically not at risk for the business’s debts and obligations.

  • Double taxation
    C corps are taxed at the corporate level, and the shareholders are also taxed on any dividends or distributions they receive. This can result in double taxation, which can be a disadvantage for some businesses.

  • Management and control
    C corps are managed by a board of directors, who are elected by the shareholders. The board is responsible for making major decisions about the company’s direction and strategy.

  • Stock and ownership
    C corps can issue different classes of stock, which can provide different levels of control or economic rights to the shareholders. Additionally, C corps can have an unlimited number of shareholders.

  • Capital and financing
    C corps can issue stock to raise capital, and they can also take on debt like any other corporation. Additionally, C corps can go public through an initial public offering (IPO), which can provide access to significant amounts of capital.

  • Perpetual existence
    C corps can continue to exist beyond the departure or death of any one shareholder.

C corps are advantageous for businesses that want to provide limited liability protection to their shareholders and have access to significant amounts of capital. However, double taxation can be a disadvantage for some businesses, and the strict regulatory and reporting requirements can make it challenging for some smaller businesses.

S corporation (S corp)

An S corporation, or “S corp,” is similar to a C corp, but it is designed for small businesses with a limited number of shareholders. It allows the business to avoid double taxation, since the profits and losses of the corporation are passed through to the shareholders’ personal tax returns. S corps can be a good option for small businesses that want to avoid double taxation and provide limited liability protection to their shareholders, while the strict shareholder requirements and limitations on stock issuance are drawbacks for some businesses.

Here are some important things to know about S corps:

  • Pass-through taxation
    S corps are not taxed at the corporate level. Instead, to avoid double taxation, the profits and losses are passed through to the shareholders, who report the income on their personal tax returns.

  • Shareholder requirements
    S corps have strict requirements for shareholders, including limitations on the number and type of shareholders. S corps cannot have more than 100 shareholders, and they must all be individuals, certain trusts, or estates. Additionally, shareholders must be US citizens or residents.

  • Limited liability protection
    Similar to C corps, S corps offer limited liability protection to their shareholders, meaning that shareholders are not personally liable for the business’s debts and obligations.

  • Management and control
    Like C corps, S corps are managed by a board of directors, who are elected by the shareholders. The board guides all major decisions regarding the company’s direction and strategy.

  • Tax status
    To become an S corp, the corporation must file Form 2553 with the IRS and meet all the requirements. The corporation can terminate the tax status, or the IRS can revoke it, if the requirements are not met.

  • Capital and financing
    S corps can issue stock to raise capital, and they can also take on debt like any other corporation. However, there are limitations on the types of stock that can be issued, which can impact the ability to raise capital.

Nonprofit corporation

A nonprofit corporation is a special type of corporation that is formed for charitable, educational, or religious purposes. This structure is exempt from federal and state income taxes and allows for tax-deductible donations to the organization.

Here are a few important attributes of nonprofit corporations:

  • Tax-exempt status
    Nonprofit corporations are exempt from federal income tax and may also be exempt from state and local taxes. Additionally, donations made to nonprofit corporations are typically tax-deductible for the donor.

  • Charitable purpose
    Nonprofit corporations must be formed for a charitable, educational, or religious purpose. They must operate for the public benefit, and their activities cannot primarily benefit private individuals or shareholders.

  • Governance
    Nonprofit corporations are governed by a board of directors, who are responsible for overseeing the organization’s activities and ensuring that it is operating in accordance with its mission and goals.

  • Fundraising
    Nonprofit corporations rely on fundraising to support their activities and operations. This can include donations from individuals, corporations, and foundations, as well as grants and fundraising events.

  • Financial reporting
    Nonprofit corporations must file annual financial reports with the IRS, which are made publicly available. Additionally, they must maintain accurate financial records and provide transparency about their activities and use of funds.

  • Perpetual existence
    Nonprofit corporations can continue to exist beyond the departure or death of any one member.

Overall, nonprofit corporations are a good option for organizations that want to operate for a charitable, educational, or religious purpose and provide tax-exempt status to their donors. However, nonprofit corporations must adhere to strict governance, fundraising, and financial reporting requirements.

Because there are specific parameters about which businesses qualify for nonprofit status, it’s important to consult with legal and financial professionals to determine if a nonprofit corporation is the right choice for your organization.

How Stripe can help

Stripe Atlas makes it simple to incorporate and set up your company so you’re ready to charge customers, hire your team, and fundraise as quickly as possible.

Fill out your company details in the Stripe Atlas form in less than 10 minutes. Then, we’ll incorporate your company in Delaware, get your IRS tax ID (EIN) for you, help you purchase your shares in the new company with one click, and automatically file your 83(b) tax election. Atlas offers multiple legal templates for contracts and hiring and can also help you open a bank account and start accepting payments even before the IRS assigns your tax ID.

Atlas founders also gain access to exclusive discounts at leading software partners, one-click onboarding with select partners, and free Stripe payments processing credits. Start your company today.

The Stripe Atlas application

It takes less than 10 minutes to fill out the details of your new company. You’ll choose your company structure (C corporation, limited liability company, or subsidiary) and pick a company name. Our instant company name checker will let you know if it’s available before you submit your application. You can add up to four additional cofounders, decide how you split equity between them, and reserve an equity pool for future teammates if you choose. You’ll appoint officers, add an address and phone number (founders are eligible for one year of a free virtual address if you need one), and review and sign your legal documents in one click.

Forming the company in Delaware

Atlas will review your application and file your formation documents in Delaware within one business day. All Atlas applications include expedited 24-hour processing service at the state, for no extra fee. Atlas charges $500 for your formation and your first year of registered agent services (a state compliance requirement), and $100 each year thereafter to maintain your registered agent.

Getting your IRS tax ID (EIN)

After your formation in Delaware is complete, Atlas will file for your company’s IRS tax ID. Founders who provide a US Social Security number, US address, and US phone are eligible for expedited processing; all other users will receive standard processing. For standard orders, Atlas calls the IRS to retrieve the EIN for you, using real-time IRS data to determine when your filing is likely to be available. You can read more about how Atlas retrieves your EIN and view current tax ID ETAs.

Purchasing your shares in the company

After Atlas forms the company, we’ll automatically issue shares to the founders and help you purchase them so you formally own your share in the company. Atlas allows founders to purchase their shares with intellectual property in one click and reflect this in your company documents, so you don’t need to mail and track cash or check payments.

Filing your 83(b) tax election

Many startup founders choose to file an 83(b) tax election to potentially save on future personal taxes. Atlas can file and mail your 83(b) tax election in one click for both US and non-US founders—no trip to the post office required. We’ll file it using USPS Certified Mail with tracking, and you’ll get a copy of your signed 83(b) election and proof of filing in your Dashboard.

Partner perks and discounts

Atlas partners with a range of third-party tools to offer special pricing or access to Atlas founders. We offer discounts on engineering, tax and finance, compliance, and operations tools, including OpenAI and Amazon Web Services. Atlas also partners with Mercury, Carta, and AngelList to provide faster, automatic onboarding using your Atlas company information, so you can get ready to bank and fundraise even faster. Atlas founders may also access discounts on other Stripe products, including up to one year of free credits toward payments processing.

Read our Atlas guides for startup founders, or learn more about Stripe Atlas and how it can help you set up your new business quickly and easily. Start your company now.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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