Please explain me like I’m five what is the difference between the different options to incorporate a company in the US. What are the advantages and disadvantages of each option.
Thank you!
In: Other
Corporation: An organization with shareholders and a board of directors. A lot of how corporations are organized is determined by statutes. A corporation’s owners aren’t responsible for the corporation’s liabilities. All corporations that are organized for profit are either C-corporations or S-corporations.
C-Corporation: a corporation that pays tax on its own earnings. Then if it distributes earnings to its stockholders, they pay tax also.
S-Corporation: a corporation that doesn’t pay tax on its own earnings — instead, its earnings only show up on its stockholders tax returns. There are strict limits on who can own S-corps.
LLC: an entity where how it is organized is mostly determined by agreement among the owners. It can choose to be taxed as a C-corporation, but typically doesn’t pay taxes on its own earnings and, instead, passes them through to its owners (who are called ‘Members”). An LLC’s owners also aren’t responsible for its liabilities.
Partnership: Similar to an LLC, but the owners (called “Partners”) are responsible for the partnership’s liabilities. These don’t really need any written agreement and are sometimes formed by accident.
LLP: Just like an LLC, but “P” means “partnership” and not “company.” From an ELI5 perspective, think of it just like an LLC.
Sole Proprietorship: A guy goes into business for himself, doesn’t form any company. He’s responsible for all of the company’s liabilities.
Latest Answers