Article

6 Types of Business Entities

tax-form-photo-1200x800.jpg

When you understand how a business is designated, or the type of incorporation, it can clue you in to how the company operates. Most companies are required to incorporate their business in the state in which they are headquartered or where they conduct the majority of their business. States handle a variety of business designations.

For federal tax purposes, however, there are six important types of business entities:

1. Sole Proprietor – These are unincorporated businesses — the independent contracts and freelancers of the world. You don't need to fill out any forms to start this type of business, only report your business income for tax purposes. A sole proprietorship is the easiest type of business to set up and dissolve.

2. C-Corporation – Incorporated businesses. For-profit entities with at least one shareholder, which has full discretion over the amount of profits it distributes or retains.

3. S-Corporation- Closely held corporations. The corporation's income and losses are divided among shareholders, who are then individually taxed on their earnings.

4. Partnership – Unincorporated businesses. Partnerships must have at least two partners, one of whom assumes unlimited liability for the business. Net income is distribute to the partners.

5. Trust – most common when formed upon the death of an individual, with the goal of continuing investment activities and distributing assets to a beneficiary.

6. Nonprofit organization – formed for a charitable, religious, or artistic purpose. These corporations are generally tax exempt, but report their earnings and activities to the IRS.

Partnership - Linkedin Post - Traditional Minimal (1)

PEX Partners with SAP Concur for Real-time Spend Visibility and Greater Productivity

Yes, target met for the day!

Now Available: AI-Based Receipt Matching, Advanced Approval Processes, and More

High angle view of three people with helmets, female architect, foreman and engineer on a construction site, looking down on a blueprint, copy space.

5 Ways ServPro Franchises Boost Profits with QuickBooks and PEX

Stay up to date on the latest PEX news!

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank, N.A. (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).