In a Sole Proprietorship, you alone own the company and are responsible for its assets and liabilities. This is the most basic type of business to establish and offers you complete control and easy tax preparation with the lowest tax rates.

A Limited Liability Company (LLC) offers a hybrid structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members.” Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are “passed through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.

A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor, or skill. In return, each partner shares in the profits and losses of the business. Because partnerships entail more than one person in the decision-making process, it’s important to discuss a wide variety of issues up front and develop a legal partnership agreement. There are three general types of partnerships: General Partnerships, Limited Partnerships, and Joint Ventures. Each have their own benefits and disadvantages.

A cooperative is a business or organization owned by and operated for the benefit of those using its services. The profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. A cooperative is typically run by an elected board of directors and officers, while regular members have voting power to control the direction of the cooperative. Members can become part of the cooperative by purchasing shares, though the amount of shares they hold does not affect the weight of their vote. Cooperatives are common in the healthcare, retail, agriculture, art, and restaurant industries.

A Corporation (sometimes referred to as a C Corporation, or C Corp) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Because of these issues, corporations are generally suggested for established, larger companies with multiple employees. Corporations offer the ability to sell ownership shares in the business through stock offerings and initial public offerings are a major selling point in attracting investment capital and high-quality employees.

An S Corporation (sometimes referred to as an S Corp) is a special type of Corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the Corporation and again to the shareholders) by electing to be treated as an S Corp. What makes the S Corp different from a traditional C Corp, is that profits and losses can pass through to your personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed. There is an important caveat, however: any shareholder who works for the company must pay him or herself “reasonable compensation.” Basically, the shareholder must be paid fair market value, or the IRS might reclassify any additional corporate earnings as “wages.”