There are several types of business entities in the US, each with different characteristics. A corporation has a separate legal existence from its owners and an S corporation passes corporate income through to shareholders. A limited liability company (LLC) is a hybrid structure that provides liability protection like a corporation. When starting a business, an entrepreneur must choose between forming a sole proprietorship, partnership, S corporation, C corporation or LLC, considering factors like taxation, liability, and ownership.

1. MAIN
BUSINESS
FORMS IN
THE U.S

2. When beginning a Business, you must decide
what form of Business entity to establish.
Separate Legal existence from that
of its owners, managers, operators,
employees and agents.
Has its own property, its own rights
and its own obligations.
Its formation has a cost and its made
by filing articles of incorporation with
the State Business Registrer.
Its money and other assets belong to
the corporation and must be used for
its own purposes.
It can enter into contracts, sue and be
sued.
https://www.irs.gov/businesses/small-businesses-
self-employed/forming-a-corporation
A group of persons banded together for a
specific purpose.
It has no legal existence apart from the
members.
You don’t need to register an
unincorporated association. Free costs.
The property and money of the
association belongs to the members.
Individual members are personally
responsible for any debts and
contractual obligations.
https://www.irs.gov/charities-non-profits/definition-of-
an-association
CORPORATION
ASSOCIATION

3. Corporate Law
Sources
In the U.S, most Corporate Law comes from
State Statutes.
They are all subtly different, but many follow the
structure of the Model Business Corporation Act
(MBCA), a “Model Statute" drafted by the
American Bar Association (ABA).
Every Corporation is internally governed by the
Law of the State in which it is incorporated, or
formed.
 Main Fiscal Authority:
Internal Revenue Service (IRS)
https://www.irs.gov/businesses/small-businesses-self-
employed/starting-a-business

4. Business Models
ASSOCIATIONS
FORMS
SOLE
PROPRIETOR
PARTNERSHIPS
CORPORATION
FORMS
C
CORPORATION
S
CORPORATION
LLC

5. SOLE
PROPRIETO
R
A Business with a single owner. He is in complete control.
No separate legal entity is created.
The owner
 Pays personal income Tax on profits earned from the Business.
 Which means paying no taxes for corporate incomes.

Liability
The owner is personally liable for everything done in the
Business name.
It doesn’t need registry, but it does have to take
care of some other legal matters:
Get a business license, apply to the state for sales tax permits, among
others.
https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships

6. PARTNERSHIPS
Relationship existing between two or more persons who join to carry on a
trade or Business.
Each person: Contributes money, property, labor or skill, and expects to
share in the profits and losses of the business.
NO legal steps in forming it: It just needs the agreement of two investors +
intention of making a profit.
Taxation.
The income earned from the business is filed on the individual partners
tax returns. You pay no corporate income tax and in this sense, there is
no double taxation.
Liability.
1. General Partnerships. All partners manage the Business. General partners have
an obligation of strict liability to third parties injured by the Partnership. They are
personally liable for not only their actions, but the actions of all general partners. It
doesn’t need a write agreement.
2. Limited Liability Partnership (LLP) A formal structure that requires a written
partnership agreement. Each partner is not liable for another partner's misconduct
or the social losses.
https://www.irs.gov/businesses/small-businesses-self-employed/partnerships

7. Chapter 2 of the MBCA and Subchapter I of the Delaware
General Corporate Law outline how a corporation is formed.
There are three main steps in the process:
I. An incorporator files articles of incorporation with the
secretary of State's office.
II. The Corporation holds an organizational meeting to
select a board of directors.
III. The board of directors meets to adopt bylaws, appoint
officers, and other tasks.
Conducts Business, realizes net income or loss, pays
Taxes and distributes profits to Shareholders.
A Corporation
¿How is it Formed?
The IRS
Distinguishes 2 types
 C CORPORATION
 S CORPORATION

8. C
CORPORATION
There are a lot of fees that
come with filing the Articles of
Incorporation.
And corporations pay fees to
the state in which they
operate.
No limit to the number of
shareholders.
They can be: Non-residents
individuals or companies.
Shareholders cannot deduct
any loss of the corporation
Unlimited growth potential
through the sale of stocks,
which means you can attract
some very wealthy investors.
Separate taxpaying entity.
The profit is taxed to the
corporation when earned,
and then is taxed to the
shareholders when
distributed as dividends.
https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation

9. S CORPORATION
Pass corporate income, losses,
deductions, and credits through to their
shareholders.
Its not a separated taxpaying entity. Avoid
double taxation on the corporate income.
Liability is limited to that of a regular
Shareholder of a C Corporation
To qualify for S corporation status, the corporation
must meet the following requirements:
 1. Be a domestic corporation.
 2. Have only allowable shareholders.
 -> May be individuals, certain trusts, Estates.
 -> May NOT be partnerships, corporations or
non-resident shareholders.
 3. Have NO more than 100 shareholders
 4. Have only one class of stock
 5. Not be an ineligible corporation
 -> May NOT be certain financial institutions,
insurance companies, and domestic international
sales corporations.
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations

10. LIMITED LIABILITY
COMPANY
(LLC)
Is a State allowed Business
structure that mixes the benefits
of sole proprietorships and
corporations.
It’s not considered a separate
entity.
Can be created simply by filing
the "articles of organization" and
paying the required filing fee.
The Owners are referred as
Members.
They have to report the Business
profits, or losses, on their
personal income Tax returns.
The Company does not pay
Taxes or take on losses.
Just like Corporations, members
of an LLC are protected from
personal Liabilities.
No limit of Members, but there is
always a managing member who
is in charge of daily operations
for the Business.
Limited life and are usually
dissolved when a member dies,
or if the Company faces
bankruptcy.
https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc

11. C CORP S CORP LLC
ADVANTAGES
 Limits personal Liability from
Business debts and
Lawsuits.
 No restrictions on
Ownership or number of
Shareholders.
 Easy to transfer stock.
 It can offer public stock.
 Formation State fee may be
less than LLC.
 Limits personal Liability from
business debts and
Lawsuits.
 Potentially favorable
Taxation. Avoids the Double
Tax.
 May also avoid the owner
Tax.
 Limits personal Liability from
Business debts and
Lawsuits.
 No restriction on Ownership
 Formation and Ownerships
requirements are less
orthodox than with C Corps
and S Corps.
DISADVANTAGES
 Profits are double taxed
meaning taxed at corporate
and individual level.
 No more than 100
Shareholders
 All shareholders must be US
citizens or permanent
residents and not other
corporation members.
 Some states require LLCs to
have more than one
Member.
 Transfering ownership is
more complicated than with
C Corp or S Corp.
 Potentially higher taxation
than S corp.