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Understanding how the corporate system works in the United States can make all the difference in the success of your business as an entrepreneur. Therefore, the characteristics of each type will determine which is the right one. To understand the ideal type of company for you, speak to one of our specialists. See the types of entities available below:

1. Sole Proprietorship:

According to the US IRS, Sole Proprietorships are the most common type in the country, being commonly used for small businesses, freelancers and consultants. It is not necessary for the business to be registered in the state of formation, as is the case with limited liability companies and corporations to be seen later, but it is still necessary to have licenses to run the business in accordance with local laws. In addition, it is not necessary to request the IRS to issue an EIN – company identification number, unless you have employees.

2. Partnership:

A partnership is an association of two or more individuals (which may be individuals, corporations, other partnerships, LLCs, trusts, etc.) whose objective is to make a profit.

2.1. General Partnership:

A union of two or more individuals who will share the rights and obligations in equal proportions, as well as the management of the business, where each will be personally responsible for all debts and obligations. In this way, the members will be administrators of the company and also personally responsible for all its obligations, dividing the responsibilities equally.

2.2. Limited Partnership:

This type of business focuses mainly on cases in which a given member wants to maintain 100% control of an asset or project, but intends to include investors in the business's revenue. For this reason, it is often used in cases of real estate investments or film productions, where investors invest their money in a specific project. They are passive investors who will not receive distributions, but will be entitled to the percentage that corresponds to them according to their investment and the business's revenue.

2.3. Limited Liability Partnership (LLP):

This is usually adopted by a partnership of independent professionals such as lawyers, accountants, architects, dentists, etc. This is because the LLP guarantees protection to its partners in the sense that they cannot be held personally liable for the negligence of other members. This is why some states only allow professionals who offer business services to form an LLP and require each professional to have their own license issued by the responsible body.

3. Limited Liability Company (LLC):

LLCs constitute a new legal entity, where although the members are close, they are two separate entities. Thus, an LLC will have the same rights that a person would have, such as buying and selling properties, having a bank account and being responsible for the operation of a business.

4. Corporation:

A Corporation is a type of business whose business is completely separate from its owners. Therefore, it has the same rights and obligations that individuals would have, such as opening a bank account, buying and selling properties, signing contracts, hiring employees, etc.

4.1. S-Corp:

The US IRS allows a corporation to be treated for tax purposes as if it were a partnership, and in this case it is referred to as an S Corporation. In this way, its shareholders can use the profit as a distribution and then include it in their personal income tax returns.

4.2. C-Corp

It is a legal entity that serves as an intermediary layer between the operators and the owners of the business, who may or may not be directly involved in the operations.