When starting a business you must decide which entity is best for you. Experts say that there is an eighty percent chance that you will select the wrong entity. There are six possible entities to choose form include nonprofit corporation, corporation, limited liability company, limited partnership, general partnership and sole proprietorship.

With a sole proprietorship the business has only one single owner. Sole proprietorship is easy to form making it the most common form of business. The owner has complete control over the business. The owner is the one responsible for all financial obligations. The owner’s personal income tax return will report all business income and expenses. The business is only terminated when the owner either dies or withdraws.

A general partnership business has two or more people who agree to share losses and profits of the business. Both partners can make business decisions and both are responsible for any and all business debts. Partnership income is reported on each partner’s individual tax return. The partnership ends when a partner dies or withdraws.

In a limited partnership business one or more partners control the business while other partners contribute money and share the profits. The business is managed by the general partners. General partners take all responsibility for all obligations of the partnerships while limited partners have no responsibilities beyond their investments. Incomes and losses are reported on each partner’s individual tax returns. The death or withdrawal of a general partner will terminate the business. The death or withdrawal of a limited partner will not.

Limited Liability companies are similar to partnerships and corporations. The owner controls all business decisions. The limited liability company is responsible for all business obligations not the partners. Partner’s income is reported on their individual income tax returns. Laws concerning the continuation of limited liability companies vary from state to state.

A corporation will not be terminated due to the death of an owner, partner or shareholder. Shareholders are responsible for their amount of money in their stock investments. The corporation has a separate tax life from its shareholders. Shareholders form a board of directors and elected officers manage the business. The corporation usually pays its own taxes and shareholders pay taxes on their individual tax returns depending on the individual shareholder’s tax rate.

Nonprofit corporations are created with intent other than making a profit. No profit is distributed to offices or directors. A nonprofit corporation is usually controlled by a board of directors or trustees. People that work for the corporation and handle daily operations may receive salaries. Nonprofit corporations are exempt from paying any taxes but must file exemptions at state and federal levels. Nonprofit corporations can never be sold. If the corporation is to be dissolved all assets are distributed to another nonprofit corporation.