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BUSINESS STRUCTURES

WHAT IS AN LLC?

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LLC stands for Limited Liability Company. It's a business structure combining elements of a corporation and a partnership (or sole proprietorship).

It offers the same limited liability protection as a corporation but with more flexibility in management and tax structure. Owners report profits and losses on their tax returns.​​​

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Key Features of an LLC:

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  1. Limited Liability

    • Owners (called members) aren’t personally responsible for the business’s debts or legal issues—meaning their assets are usually protected.

  2. Pass-Through Taxation

    • Profits and losses are “passed through” to the members and reported on their tax returns—avoiding double taxation like a corporation.

  3. Flexible Management

    • LLCs can be managed by the members themselves (member-managed) or by appointed managers (manager-managed).

  4. Fewer Formalities

    • Compared to corporations, LLCs typically have fewer rules and paperwork requirements (like annual meetings or detailed record-keeping).

 

Who Can Form an LLC?

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  • Individuals, multiple people, corporations, or even other LLCs can be members.

  • There’s no maximum number of members, and in most states, even a single person can form a Single-Member LLC.

 

Common Reasons to Choose an LLC:

  • You want to protect personal assets.

  • You want a simpler structure than a corporation.

  • You like tax flexibility (LLCs can also elect to be taxed as an S-Corp or C-Corp).

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LLCs are popular among small business owners, entrepreneurs, and those seeking liability protection without the complexity of a corporation.

WHAT IS A SOLE PROPRIETORSHIP?​

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A sole proprietorship is the simplest and most common type of business structure. One individual owns and operates it, and there’s no legal distinction between the owner and the business. The owner is personally responsible for all business debts and liabilities and reports business profits on their income tax return.​
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Key Features of a Sole Proprietorship:

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  1. Single Owner

    • One person owns and runs the business.

  2. Easy to Start

    • No formal registration is required in many places (though business licenses or permits may be needed).

  3. Full Control

    • The owner makes all the decisions and keeps all the profits.

  4. Personal Liability

    • The owner is personally responsible for all business debts and obligations. That means your personal assets (like your house or savings) could be at risk if the business runs into trouble.

  5. Pass-Through Taxation

    • The business income is reported on the owner’s tax return (usually with a Schedule C in the U.S.).

 

Examples:

  • Freelancers

  • Independent consultants

  • Small retail shop owners

  • Artists or creators selling work independently

 

Pros:

✅ Easy and inexpensive to start
✅ Complete control
✅ Simple tax filing

 

Cons:

❌ Unlimited personal liability
❌ Harder to raise funds
❌ Can feel isolating (you’re on your own)

WHAT IS A BUSINESS PARTNERSHIP?

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A business partnership is a legal relationship between two or more people who agree to own and run a business together. In a partnership, all partners share the responsibility, profits, losses, and decision-making of the company (though how much they share can depend on the type of partnership and their agreement). Each partner is personally responsible for the partnership’s debts and liabilities, and each partner reports profits and losses on their tax return.

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Key Elements of a Business Partnership:

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  1. Shared Ownership

    • Two or more individuals or entities co-own the business.

  2. Profit & Loss Sharing

    • Partners typically split profits and losses based on their agreement (not always equally).

  3. Joint Decision-Making

    • Partners work together to make business decisions unless otherwise agreed.

  4. Personal Liability (in some types)

    • In general partnerships, each partner is personally liable for business debts.​

 

Common Types of Partnerships:

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  1. General Partnership (GP)

    • All partners manage the business and share liability.

  2. Limited Partnership (LP)

    • One or more general partners run the business and are liable, while limited partners invest money but have limited liability and typically no management role.

  3. Limited Liability Partnership (LLP)

    • All partners have limited liability, which protects them from personal responsibility for business debts or the actions of other partners. This is common for professionals like lawyers and accountants.​

 

Why Form a Partnership?

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  • Easy to start and operate

  • Shared startup costs and responsibilities

  • Diverse skills and experience from different partners

WHAT IS A CORPORATION?

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A corporation is a legal entity that is separate and distinct from its owners (called shareholders). It’s created under state or national law and has many of the same legal rights as a person—like owning property, entering contracts, suing or being sued, and paying taxes. A corporation entity is responsible for its debts and liabilities. Profits are taxed separately from the owner’s income. Corporations also offer limited liability protection to their owners.

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Types of Corporations:

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  • C Corporation (C-Corp)

    • Taxed separately from its owners.

    • Can have unlimited shareholders, including foreign investors.

  • S Corporation (S-Corp)

    • Income is passed through to shareholders to avoid double taxation.

    • Has restrictions on the number and type of shareholders.

  • Nonprofit Corporation

    • Operates for charitable, educational, or other purposes.

    • Profits are reinvested, not distributed to owners.

  • B Corporation (Benefit Corporation)

    • ​Definition: A for-profit corporation that also seeks to have a positive impact on society and the environment. It's designed for businesses that want to prioritize social goals alongside profit.

    • ​​Liability: The company offers limited liability for shareholders.

    • Taxation: Like C-corporations, they are taxed at the corporate level.

    • Pros: Can attract socially-conscious investors, provides legal protection for pursuing social and environmental goals.

    • Cons: More regulatory requirements, less focus on profit maximization.

  • Cooperative (Co-op)

    • ​Definition: A co-op is a business owned and operated by its members, who share the profits and decision-making power.

    • Liability: Members are typically not personally liable beyond their investment.

    • Taxation: Co-ops are usually taxed similarly to corporations, but they may qualify for special tax breaks depending on the structure and region.

    • Pros: Democratic decision-making, shared profits, limited liability.

    • Cons: Complex structure, slower decision-making process, more difficulty raising capital.

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Key Features of a Corporation:

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  1. Limited Liability

    • Shareholders are not personally liable for the company’s debts or legal obligations. Their risk is limited to the amount they invested.

  2. Separate Legal Entity

    • A corporation exists independently from its founders or owners. It continues to exist even if owners leave or change.

  3. Perpetual Existence

    • Unlike sole proprietorships or partnerships, a corporation doesn't dissolve when an owner dies or sells their shares.

  4. Ability to Raise Capital

    • Corporations can issue stock to raise money from investors.

  5. Formal Structure

    • Typically includes shareholders, a board of directors, and corporate officers (like CEO, CFO, etc.).

WHAT IS A TRUST?

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A trust is a legal arrangement where one party (called a trustee) holds and manages assets for the benefit of another party (called a beneficiary) based on instructions from the person who created the trust (the grantor or settlor). Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.​

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Key Players in a Trust:

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  1. Grantor (Settlor) – The person who creates the trust and places assets into it.

  2. Trustee – The person or institution responsible for managing the trust according to its terms.

  3. Beneficiary – The person(s) or organization(s) who receive the benefits from the trust.

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Types of Trusts:

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  1. Revocable Trust (Living Trust)

    • It can be changed or canceled by the grantor during their lifetime.

    • Often used for estate planning to avoid probate.

  2. Irrevocable Trust

    • It cannot be changed once established (without court approval or beneficiary consent).

    • Often used for asset protection, tax planning, or charitable giving.

  3. Testamentary Trust

    • Created through a will and comes into effect after the grantor’s death.

  4. Charitable Trust

    • Set up to benefit a charity or the public.

WHAT IS A NON-PROFIT ORGANIZATION?​​

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A non-profit organization (NPO) is a type of organization that operates for a purpose other than making a profit. Instead of distributing profits to owners or shareholders, surplus funds are reinvested into achieving the organization’s goals—like helping communities, advancing education, promoting health, supporting the arts, or protecting the environment. A nonprofit might serve religious, scientific, charitable, literary, or animal welfare purposes.

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Key Features of a Non-Profit:

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  1. Mission-Driven

    • The main goal is to serve a public or community benefit (not to make money for owners).

  2. No Profit Distribution

    • Any extra funds go back into the organization, not to individuals.

  3. Tax-Exempt Status (in many cases)

    • In the U.S., for example, many NPOs qualify for 501(c)(3) status, which means they don’t pay federal income taxes, and donors may get tax deductions.

  4. Governed by a Board

    • Usually managed by a board of directors or trustees, not by owners.

  5. Funded by Donations, Grants, and Memberships

    • May also earn money through events, sales, or services—but that money supports the mission.

 

Examples of Non-Profit Organizations:

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  • Charities (e.g., Red Cross, Habitat for Humanity)

  • Educational institutions (e.g., public schools, universities)

  • Religious organizations (e.g., churches, mosques)

  • Foundations and advocacy groups

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