Business Structure Terminology

Sole Proprietor: A sole proprietorship is a business which is carried out by a single person. A sole proprietor has the freedom to sell any portion of the business at any time, carries the entire load of the business, and is exposed to unlimited personal liability.

Partnership: A partnership is an organization of two or more persons who pool their money, abilities, and skill into a business. Profit or loss is divided among the partners in a predetermined agreement. There are few formal restrictions on the management of the business and each partner in a partnership is exposed to unlimited liability.

Limited Partnership: A limited partnership is an entity in which one or more persons with unlimited liability (general partners) manage the partnership and one or more other persons contribute capital (limited partners). The limited partners have no right to participate in the management and operation of the business.

Corporation: A corporation is a legal entity chartered by a state government. It is separate and distinct from the persons who own it. It can sue, be sued; hold, convey, and receive property; and enter into contracts under its own name.

S Corporation: A Subchapter S Corporation has a limited number of stockholders and elects not to be taxed as a regular corporation. Shareholders include in their personal tax returns their pro rata share of capital gains, ordinary income, and so on. S Corporations avoid double taxation, which allows the expense to be deducted by the S Corporation without the officers having to pick up money for these expenses in taxable compensation.