When starting your own business, there are many different things in which you need to do before opening your doors up for business. From the idea itself, you then must choose a location, finance the business, and figure out what type of business structure your business is. Depending on which type of business structure you are, you have a specific income tax form in which you have to file with. The five types of most common business structures according to the IRS is, Sole Proprietorship, Partnership, Corporation, S Corporation and Limited Liability Company. Each structure has advantages and disadvantages so that is why as a business owner, you should figure out which type of structure is right for you.
When a business is structured as a
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The next common business structure is called a Partnership. This type of structure is when there is at least two different owners who are referred to as partners. Similarly to Sole Proprietorship, Partnerships are not incorporated. Within the partnership, there could be two different types of owners, a limited and general partner. A limited partner are mainly used for their investment to the business. However, they are limited with liability to only their ownership of the company. Limited partners have no say in management. A general partner on the other hand is like a managing partner. They work day in and day out managing the business. If the business cannot pay, the general partner’s personal assets could be taken. However, limited partner’s assets will not be at risk if he does not have an active management role within the company. When dealing with taxes for a Partnership, there is two thing in which must get done. The partnership can dissolve when all partners died or if they withdraw from the partnership. The business must report and file income with Form 1065 but will not pay income tax for it. The 1065 form is an informational return. However, the partners will distribute the income or loss amongst all members with their ownership interest.
The next common business structure is called a Corporation or known as a C-Corp. This type of structure has owners who are called shareholders. Shareholder are investors who own shares of the