Incorporation means that you have made your company as a separate legal identity. By doing so, you can use your company name to buy assets, fight legal issues, sign legal contracts, hire people for your company and so on.

Your company can be a for-profit firm or a non-profit firm.

There are four distinct types of business entities in the US. These are:

• Sole Proprietorship Company
• General Partnership Company
• Limited Liability Company (LLC)
• Business Corporation
• Sole Proprietorship Company

This is a fairly simple type of business entity and is most suitable for small or single-owner firms. This means that a single owner owns the business and is directly accountable for its debts. Since, the owner is entirely liable for his or her company; this puts all personal property and wealth at risk. There are absolutely no formalities in this type of business apart from the applicable licensing requirements. This kind of business is run solely by the owner or proprietor. The owner can stop business operations any time he wishes to.

General Partnership Company

This kind of firm is formed when two or more owners share the same vision and decide to form a company and equally distribute the profits or losses generated through it. All the partners are equally liable for business debts. There is usually a formal partnership agreement that defines the way in which the profits and debts would be shared among the partners. In this type of business also, the personal property of the partners is at risk in case of bad debts. The partnership agreement also defines the roles and responsibilities of each partner, the management decision-taking powers, disagreement settlement terms, term of contract, and so on.

Limited Liability Company

LLC has two or more members and gives them the benefit of both corporations and partnerships. The major difference in LLC as compared to sole proprietorship or general partnership is that the owners of an LLC are not directly liable for any debts of their business – this is why it is called a limited liability company. LLC is also recognized as a separate legal entity from its members. The control and the management decisions lie in the hands of its members. The operating agreement can have details on role of each member and their decision making power. All major decisions in an LLC are made on mutual consent.

Business Corporation

This is among the most complex forms of business entities. A corporation also has a separate legal and tax identity from its owners. This means that the corporation continues irrespective of its shareholders. A corporation can have one director or a board of directors. The corporation is owned by shareholders and they are the ones who vote for the selection of the board of directors. They have to follow a lot more legal formalities than any other form of business. A business corporation must have annual meetings; minutes of the meetings should be documented; and so on. Corporations have separate legal and tax files and the rules of the game are different too. Business corporations can be of two types – “S” or “C” corporations.