1. Sole Proprietorship
Usually a natural person invests in establishing a business entity without registration or other formalities. The advantage of this type of company is that the company’s founder has full control over the company and the right to sign the contract outside. But the disadvantage is that the company owner will assume unlimited liability. Taxes are based on individuals and all profits must be taxed. The owner of the company must submit Form 1040 and pay the individual business tax on the sum of all income.
2. General Partnership
A for-profit business entity consisting of two or more persons. The partnership agreement need not be in writing. The disadvantage is that all partners assume unlimited joint and several liability, and each partner is obliged to pay off all the debts of the company. In addition, each partner will be responsible for the business activities of other partners. Taxes are based on individuals and all profits must be taxed. This form of partnership requires the submission of a separate tax return and the payment of the partner’s social security fees and medical insurance.
3. Limited Partnership
The entity must submit a limited partnership certificate to the state government. Typically, a company consists of two groups, one group consisting of one or more general partners and the other group one or more limited partners. The general partner mainly conducts business operations and has full responsibility for all the debts. A limited partner does not participate in the business operations of the company and does not assume unlimited joint and several liability. Its legal liability does not exceed its investment share. Taxes are based on individuals and all profits must be taxed. The general partner must pay the individual business tax on all partnership income, but the limited partners need not pay such taxes.
4. Limited Liability Partnership
The entity needs to submit a registration statement to the state where the company is located. This form provides general partners and limited partners with limited liability protection.
5. Limited Liability Company
The entity consists of one or more people and must submit the articles of association to the state where the company is located. In general, a limited liability company does not require complicated legal procedures, but it must have a code of practice that describes the rights and obligations of members of a limited liability company. LLC is actually a mixture of partnership and corporate form. Members of a limited liability company do not assume personal responsibility for the company’s debt. In most cases, company members only need to pay self-employment tax on their personal income. The company’s own profit and loss will be reflected in the 1041 table.
6. Corporation
To handle such companies, first of all, everyone must submit the company’s articles of association to the state where the company is located. At the same time, regulations and bylaws and company meeting records need to be provided. And in most cases, a shareholder agreement is required. Companies of this type must pay two kinds of taxes: one is to pay company-level income, and the other is to pay shareholders dividends.
7. S Corporation
Such companies pay taxes in the form of S companies. In order to form a S company, the company must submit a 2553 form to the IRS within a specified time period for application. Shareholders are not personally liable for corporate debt. Because there is no company-level tax, S companies pay tax in the same way as a partnership, based on the company’s revenue and losses. Taxes are based on individuals and all profits must be taxed. Shareholders pay an employment tax on their salaries but do not pay tax on their dividends. S corporations do not have individual business tax. The disadvantage of this type of company is that there are restrictions on the number of shareholders and the criteria for becoming a shareholder.
*About 75% of companies in the United States are registered as limited liability companies (LLCs) and registered in Delaware. According to the law, the LLC company itself does not have to pay income tax to the state and the federal government. Conversely, any company’s expenses and capital losses can be retained forever to offset future profits, shareholder partners, dividends obtained, individualism, and taxation arrangements.
- Delaware’s commercial laws are among the most flexible laws in the United States.
- The Delaware courts focused solely on commercial law. The judges were judges rather than juries.
- Companies registered in Delaware do not pay corporate income tax if they are not doing business in the state.
- Companies with complex capital structures and benefits often have superior taxation measures.
- Non-residents will not be subject to personal income tax.
- The shareholders of a limited liability company, the company’s directors, company employees, company members, and management personnel do not need to be residents of Delaware.
- Assets owned by people outside of Delaware do not need to pay taxes to Delaware.
- In general, the court is not a major factor to consider in the course of conducting business, but Delaware is an exception. Delaware courts are often considered to be a good place for shareholder litigation. The trial only looked at business cases, and there were only judges and no jury. Especially for large companies with multiple shareholders, this is a great place for company registration.
Nevada Advantages
Over the years, Delaware attracted many companies to register here. Some other states, including Nevada, are also trying to replicate Delaware’s success, hoping to attract more companies to their state to register companies. In Nevada, some of the advantages of registered companies, especially registered limited liability companies, include:
- Nevada does not impose any corporate income tax and does not charge companies.
- There is no personal income tax and franchise tax for corporations or limited liability companies (but initial company registration fees and company annual inspection fees are required)
- Shareholders, directors, company employees, company members, or managers do not need to be residents of Nevada.
