As with most legislative issues in the United States of America there are federal and state levels of legislation. The federal refers to that which is implemented throughout the entire country and state legislation is that which is drawn up specifically in each state. When dealing with US company formation or incorporation there are certain types of companies that can be formed. This article explains each type of company that is available for US company formation. The US company formation options are referred to as business entities and there are four common categories: Sole Proprietor, Partnership (General or Limited Partnerships), Corporations ("C" Corporations and "S" Corporations) and Limited Liability Company (LLC). Which business entity is chosen for US company formation depicts what sort of ownership status, business object and tax classification that company will have. If a company is formed as a sole proprietor this means that the owner of the company has formed it on their own with no agreements with anyone else. The sole proprietor bears full responsibility for tax registration and payment, also bearing full responsibility for any debts incurred to the company. This is not the most popular form of US company formation as the liability is high for the business owner, so it only suits a few business types. A general partnership is similar to a sole proprietor format however it involves a second person. This agreement between the two partners can be only a verbal contract however sometimes this is not worth the paper it is written on and contracts are recommended. Again both partners bear liability for tax and debt, their respective profits are taxed as personal income and their assets can be held liable in the event of debt being incurred. One way of protecting against this is to form a limited partnership. This means that only the investment is at risk and the partners personal assets are protected providing that there is on general partner who assumes full management responsibility. In the event of this not happening the partners liability protection ceases to exist and they will revert to a general partnership. Partners are still taxed as personal income and it is a more popular type of US company formation. For a company to achieve corporation status it needs to file articles of incorporation. A corporation is limited by shares and falls into the double-tax bracket, meaning that the corporation needs to pay tax dividends and also pay tax on the distribution of its profits. The way around this is to for an S-corporation which means you have a different tax coding and the double-taxation is avoided. There are strict regulations surrounding this tax coding with severe penalties for breaking them. A limited liability company is different to the other types of US company formation. It has members who bear a liability limited to their amount of investment which means their personal assets cannot be held accountable. It is taxed like a partnership meaning that only the profits of the company are taxed as personal income. This is the most popular form of US company formation as it is simple to do and protects against liability.
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