Types of Companies

By Peggy B. — Published February 14, 2018

Types of Companies

Speaking of business entities, the types of companies that you would typically find in the United States include business corporations, limited liability companies or the LLC, Partnerships, and Sole Proprietorships. However, the most commonly found entities in the US are business corporations and LLCs.

Before you decide to set up a new business venture in the United States, you must first have a considerable understanding of what the two types of companies stand for and what is it that distinguishes one from the other. To make things easier for you to understand, we here have a discussion on the structural characteristics and legal implications associated with both business corporations and limited liability companies. But first, let us understand more about owning and operating a business in the United States.

How to form a company in the US?

For starters, you might want to know that all business entities in the US are governed by the state laws and not the Federal legislation. As such, different states have different sets of laws and regulations that all businesses operating there must comply with. Also, a business entity that has been opened or registered in a particular state has the right to operate within the state itself. However, for doing business in a different state, a company is required to register there as well. Since the regulatory aspects of each state are different, it is a good idea to understand the legal implications of operating in a different state before planning to extend your business there.

What is a Business Corporation?

A business corporation may be described as a type of business operation wherein the business itself is treated as a separate entity that is guided by a board of directors. Business corporations may be further subdivided into three major categories namely C corporation, S corporation, and Close corporation.

Most of the medium and large enterprises in the United States are C Corporations or General Corporations that can have an unlimited number of shareholders with the taxation of the losses and profits carried out at the corporate level. On the other hand, a close corporation may be described as an entity similar to the C Corporation with a few differences including a limitation on the number of shareholders to 30 and the prohibition of the shares to be traded on a Stock Exchange. An S Corporation differs from the C Corporation in the sense that it has been granted a special tax status by the IRS or Internal Revenue System.

What is an LLC?

An LLC or Limited Liability Company may be defined as a mix of a partnership and a corporation. Since the losses and profits are directly passed on to the members of the LLC, it largely does away with the hassle of double taxation to the business entity. In addition to this, the personal liability of the LLC’s members is limited merely to the level of investment they have made in the LLC.

An LLC can have an unlimited number of participants or members. The Creditor of the LLC doesn’t have the right to either take over the control of the voting rights of the members or the assets owned by the LLC. The members of the LLC create an operating agreement that stipulates the rules and regulations for running the company. The members can also choose to appoint separate managers to oversee the day-to-day operations of the company. In addition to this, the manager and the members of the LLC can be from anywhere and do not necessarily have to be the residents or citizens of the United States.

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