Sole Proprietorship - When a person is in business for themselves and does not have a business name or any legal organization. (Example: When Jimmy mows yards for his neighbors and they pay him by writing a check directly to Jimmy. Jimmy puts the money in his own bank account. There is no business or entity separate from Jimmy.) The business owner is responsible for all taxes.

“Doing Business As” (DBA) – When a person or other legal entity goes by a different name. A DBA must be registered with the secretary of state for a small fee. This allows a person or entity to advertise a different name for their business. (Example: Jimmy’s business has grown and is known around town as Jimmy’s Yard Service. Now, his customers can write checks to Jimmy’s Yard Service or to Jimmy individually and Jimmy can put the money directly in his own account.

Partnership – Automatically created when two or more people work together as co-owners of a for-profit business. The benefits and obligations of the business are shared by all partners according to the agreement in place. The “agreement” can be written or oral. The partnership can register as a separate entity or for a DBA. (Example: Jimmy asks his brother Timmy to help mow yards and run the business together. They agree to split everything 50/50 with a handshake. Jimmy and Timmy are partners of Jimmy’s Yard Service.) The business owners are responsible for all taxes.

Limited Liability Corporation (LLC) – An LLC is a separate entity. Limited Liability means that the company is separate from the owners and thus provides the owners with some protection against liabilities of the business. The LLC must register articles of incorporation with the secretary of state in order to be officially organized. The LLC should also create an operating agreement which lays out the rules of the management of the company. An LLC can have one or several owners. The business owners can manage the business on their own or they can hire managers to run the business. The benefit of an LLC is if properly managed, liabilities of the business are not automatically liabilities of the owners. (Example: Jimmy and Timmy are co-owners of Jimmy’s Yard Service, LLC. Jimmy hits a rock with his mower and the rock hits a customer in the eye. Because Jimmy was working under the LLC, the business is at fault and the business is responsible. Jimmy and Timmy would not be responsible individually if they are running the business correctly.) The business owners are responsible for all taxes.



Corporations – A corporation is a business whose owners are not necessarily managers of the business. The company is managed by selected managers (often called a board of directors or officers). To start, the corporate organizers must register articles of organization with the secretary of state. A corporation issues shares to its owners in accordance with the ownership percentages. The shareholders vote who the managers/directors/officers of the corporation

should be. (Example: Jimmy and Timmy create a corporation and hire Sam and Sally as directors of the corporation. Sam and Sally run the business operations, hiring employees and buying new equipment all in the name of Jimmy’s Yard Service, Incorporated. After all the expenses are paid, the remaining profits of the business can be paid to the shareholders Jimmy and Timmy or the corporation can hold on to those earnings.) Corporations by default are a “double tax” entity

because the corporation has to file and pay its own taxes, then the shareholders have to pay taxes on the money they receive from the corporation. However, a corporation may elect to be a S Corporation and avoid double taxation