Resources

Sole Proprietor

A sole proprietor is an individual who owns and operates a business on their own. It is the simplest and most common type of business structure. As a sole proprietor, you are personally responsible for all aspects of the business, including its debts, liabilities, and taxes.

Key Characteristics of a Sole Proprietorship:

• Ownership: The business is owned and controlled by a single person.
• Taxation: The business income is reported on the owner’s personal tax return, typically using Schedule C (Form 1040). The owner is taxed on the profits from the business, and there is no separate business tax filing.
• Liability: The owner has unlimited liability, meaning personal assets (such as home or car) could be used to satisfy business debts or legal judgments.
• Simplicity: A sole proprietorship is easy to set up and requires minimal paperwork. No formal registration with the state is needed, except for obtaining any necessary business licenses or permits.
• Control: The sole proprietor has full control over all business decisions and operations.

When is a Sole Proprietorship a Good Choice?

A sole proprietorship is a good option if you:

• Plan to operate a small, low-risk business.
• Prefer simplicity and low startup costs.
• Want to have complete control over decision-making.

If you decide to hire employees or need to apply for an EIN for tax purposes, a sole proprietorship still requires an EIN unless you choose to operate under your Social Security Number (SSN).

Limited Liability Company (LLC)

An LLC (Limited Liability Company) is a popular business structure that combines the flexibility of a partnership with the limited liability protection of a corporation. It is a legal entity separate from its owners (called members) and provides them with protection from personal liability for business debts or lawsuits.

Key Features of an LLC:

• Limited Liability Protection: Members are generally not personally responsible for the debts and liabilities of the business.
• Pass-Through Taxation: Profits and losses pass through to the individual members’ tax returns, avoiding double taxation.
• Flexibility in Management: Members can manage the LLC themselves or appoint managers.
• Ease of Formation: LLCs are relatively easy and inexpensive to form compared to corporations.
• Ownership Flexibility: An LLC can have an unlimited number of members, and members can be individuals, corporations, other LLCs, or foreign entities.

When Should You Choose an LLC?

An LLC may be a good choice if you:

• Want to protect your personal assets from business liabilities.
• Seek tax flexibility and prefer to avoid double taxation.
• Want a business structure that is easy to maintain and has fewer formalities than a corporation.
• Have multiple owners or plan to bring in investors.

An Employer Identification Number (EIN) is necessary if you plan to hire employees or if your LLC has more than one member.

Partnership

A Partnership is a type of business structure where two or more individuals (or entities) join together to operate a business. In a partnership, the owners share profits, losses, and management responsibilities based on the terms of the partnership agreement.

Key Features of a Partnership:

• Shared Responsibility and Profits: Partners share the responsibilities of managing the business and are entitled to a share of the profits (or losses).
• Pass-Through Taxation: Partnerships are pass-through entities for tax purposes, meaning the business itself is not taxed on its profits.
• Flexibility in Management: Partnerships offer flexibility in how the business is managed.
• Joint Liability: In a general partnership, partners are jointly and severally liable for business debts.
• Easy to Establish: Partnerships are relatively easy and inexpensive to establish.

When Should You Choose a Partnership?

A partnership may be a good choice if:

• You want to share responsibility and combine resources with others.
• You seek flexible management and decision-making.
• You want a pass-through taxation structure to avoid double taxation.
• You and your partners are willing to assume joint liability for the business’s debts (unless forming a limited partnership or LLP).

If you decide to hire employees or need to apply for an EIN for tax purposes, a Partnership still requires an EIN.

Corporation

A corporation is a legal entity that is separate from its owners (shareholders), with its own legal rights and obligations. It can own property, enter contracts, and conduct business in its own name. A corporation is typically formed to limit the liability of its owners, raise capital more easily, and provide continuity beyond the lives of its individual members.

Key Features of a Corporation:

• Separate Legal Entity: A corporation is considered a separate "person" under the law, distinct from its owners.
• Limited Liability: The owners (shareholders) have limited liability, meaning their personal assets are protected from the corporation's debts and obligations.
• Ownership and Shareholders: A corporation is owned by shareholders who invest in the company by purchasing shares of stock.
• Management Structure: Corporations typically have a board of directors that oversees major decisions and policies, and officers (such as a CEO, CFO, etc.) who manage day-to-day operations.
• Taxation: C-Corporations are subject to double taxation, while S-Corporations allow profits and losses to pass through to the shareholders' personal tax returns.

Types of Corporations:

• C-Corporation (C-Corp): Subject to double taxation but can have an unlimited number of shareholders.
• S-Corporation (S-Corp): Avoids double taxation but has restrictions on the number and type of shareholders.
• Nonprofit Corporation: Created for charitable, educational, religious, or scientific purposes and is tax-exempt.
• Close Corporation: A private corporation with a limited number of shareholders, often family members or close associates.

All corporations need an Employer Identification Number (EIN) from the IRS for tax purposes, hiring employees, and opening a business bank account.

S-Corporation

An S-Corporation (S-Corp) is a special type of corporation that allows for pass-through taxation, meaning that the income of the business passes through to the shareholders, who report it on their individual tax returns. This structure is designed to avoid the double taxation that is typical of traditional C-Corporations (C-Corp), where the business itself is taxed, and then shareholders are taxed again on dividends.

Key Features of an S-Corporation:

• Pass-Through Taxation: Income, deductions, and credits pass through to the shareholders, avoiding double taxation.
• Limited Liability Protection: Shareholders are generally not personally liable for the business’s debts or legal issues.
• Ownership Limitations: No more than 100 shareholders, and shareholders must be U.S. citizens or residents.
• Self-Employment Tax Savings: Shareholders can receive a salary and dividends, with dividends not subject to self-employment taxes.
• Formalities and Structure: S-Corps must follow certain formalities, such as holding annual meetings and maintaining an official record of business activities.

When Should You Choose an S-Corp?

An S-Corp may be a good choice for your business if:

• You want the tax benefits of a pass-through entity and wish to avoid double taxation.
• Your business has less than 100 shareholders, and they meet the eligibility requirements.
• You want to reduce self-employment taxes by taking some income as dividends rather than a salary.
• You are looking for limited liability protection while maintaining the benefits of a small business tax structure.

If you decide to hire employees or need to apply for an EIN for tax purposes, an S-Corporation still requires an EIN.

Trusts

A trust is a legal arrangement where one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). Trusts are commonly used for estate planning, asset protection, and ensuring that assets are managed according to specific instructions.

Key Elements of a Trust:

• Grantor (Settlor or Trustor): The person who creates the trust and transfers assets into it.
• Trustee: The individual or institution responsible for managing the trust assets.
• Beneficiaries: The individuals or entities who will benefit from the trust.
• Trust Assets: The property or assets held within the trust.
• Trust Agreement: A legal document that outlines the terms of the trust.

Types of Trusts:

• Revocable Trust (Living Trust): Can be changed or terminated by the grantor during their lifetime.
• Irrevocable Trust: Cannot be changed or terminated without the consent of the beneficiaries or a court order.
• Testamentary Trust: Created through a will and becomes effective after the grantor’s death.
• Special Needs Trust: Designed to provide for individuals with disabilities without affecting their eligibility for government benefits.
• Charitable Trust: Created to benefit a charitable organization or cause.

A trust generally needs an EIN if it has income, assets, or is required to file taxes.

Estate

An estate is a legal term that refers to all of the assets, property, and liabilities left by an individual after their death. The estate includes both real property (like homes and land) and personal property (such as bank accounts, stocks, personal belongings, etc.). The management and distribution of an estate are governed by the terms of the deceased person's will (if one exists) or by state law if the person dies intestate (without a will).

Key Concepts Related to an Estate:

• Executor/Personal Representative: Responsible for managing the estate, including paying debts, filing tax returns, and distributing assets to beneficiaries.
• Probate: The legal process of administering a deceased person’s estate, which includes proving the validity of the will (if one exists), paying debts, and distributing assets to beneficiaries.
• Trust: A legal entity created to hold assets on behalf of beneficiaries. A revocable living trust is often used to avoid probate and ensure a smoother distribution of assets after death.
• Estate Planning: Making arrangements for the management of your assets after your death, including creating a will, establishing trusts, naming beneficiaries, and making plans for power of attorney and healthcare directives.
• Intestate Succession: If a person dies without a will, the state laws of the jurisdiction where they lived will dictate how the estate is divided among relatives.

Key Steps in Handling an Estate:

• Determine if Probate is Needed: If the deceased person had a will, it is submitted to the court for probate. If there is no will, the court appoints a personal representative to distribute the estate.
• Appoint an Executor or Personal Representative: If the deceased person named an executor in their will, that person will take charge of the estate. If there is no will, the court will appoint a personal representative.
• Identify and Inventory the Assets: The executor or personal representative must gather and list all the assets in the estate, such as real property, bank accounts, investments, and personal property.
• Settle Debts and Liabilities: Before assets are distributed to beneficiaries, any debts owed by the estate, including taxes, must be paid.
• Distribute the Assets: Once debts are paid, the remaining assets are distributed according to the terms of the will (or according to state law if there is no will).
• File Final Tax Returns: An estate tax return and any final income tax returns for the deceased must be filed. The estate may also be subject to an estate tax if the value of the estate exceeds a certain threshold.

Estate Types:

• Testate Estate: If the deceased person has a valid will, their estate is known as a testate estate. The terms of the will govern how the estate is distributed.
• Intestate Estate: If there is no will, the estate is considered intestate, and the estate will be distributed according to the laws of the state where the deceased person lived.
• Living Estate: This term is sometimes used to describe an individual’s ongoing management of their own assets and property while they are alive, particularly in terms of long-term care planning.

An Estate EIN (Employer Identification Number) is required when managing an estate for tax purposes. An estate is treated as a separate entity by the IRS once someone passes away, and it will need its own EIN for the following reasons:

• Filing Tax Returns: The estate must file its own tax returns, including income tax and estate tax returns.
• Bank Accounts: An EIN is required to open a bank account for the estate.
• Distributing Assets: An EIN is used to manage and distribute assets to beneficiaries.

Personal Service Corporation

A Personal Service Corporation (PSC) is a special type of corporation that is primarily engaged in the business of providing personal services, and it is typically taxed differently from other types of corporations. The Internal Revenue Service (IRS) defines a personal service corporation as a corporation whose primary business activities involve the provision of personal services in fields such as health, law, accounting, consulting, architecture, engineering, actuarial science, and performing arts.

Key Characteristics of a Personal Service Corporation (PSC):

• Service-Oriented Business: Provides services rather than tangible products. The services are typically provided by individuals who have specialized skills or expertise in a particular field.
• Ownership: The majority (more than 50%) of the stock of the corporation must be owned by employees who are providing the personal services. These owners are often individuals with specialized skills in the service area, like doctors, lawyers, or accountants.
• Taxation: Personal Service Corporations are subject to special tax rules. They are taxed at the corporate tax rate (currently 21% under the Tax Cuts and Jobs Act as of 2025). This is similar to how regular C-corporations are taxed, but the key difference is that PSCs are subject to a flat 21% corporate tax rate regardless of their income level.
• Restrictions on Types of Services: The services provided by the corporation must be in specific professions like health care, legal services, accounting, etc. These services must be provided by individuals who are skilled professionals, rather than by employees with no specialized expertise.
• More Likely to Have S-Corp Election: Many Personal Service Corporations elect to be taxed as S-corporations if they meet the IRS requirements, which allows income to "pass through" to shareholders, avoiding the double taxation that C-corporations face. However, the tax advantages of the S-corp election might not be as advantageous for PSCs, given that personal service income is still subject to ordinary income tax rates.

Requirements for a Personal Service Corporation:

• Primary Business Activity: The corporation must be primarily involved in providing personal services. This could include fields like medicine, law, accounting, or consulting.
• Ownership: The corporation must have at least 95% of its stock owned by employees or owners who are in the profession providing the personal services.
• Stock Ownership: The owners of the corporation must be individuals who provide the personal services. For example, a law firm could be a PSC if most of the stock is owned by the lawyers who work there.
• Must be Incorporated: Like all corporations, a Personal Service Corporation must file articles of incorporation and comply with the necessary state laws to form a legal entity.

A Personal Service Corporation (PSC) needs an Employer Identification Number (EIN). The EIN serves several important purposes for a PSC, just as it does for other types of corporations or businesses.

Non-Profit Organization

A non-profit organization (NPO) is a type of organization that operates for purposes other than making a profit. The primary goal of a non-profit is to serve a public or social benefit rather than generating profits for its owners or shareholders. Non-profit organizations are usually focused on a particular cause, mission, or issue, such as education, charity, religion, health care, or the environment.

Key Characteristics of a Non-Profit Organization:

• Mission-Driven: Non-profits are formed to serve a particular public or social purpose. They are dedicated to a cause or mission, such as helping the less fortunate, advancing education, or promoting art and culture.
• No Profit Distribution: Unlike for-profit businesses, any income generated by a non-profit organization is reinvested into the organization's mission and programs. No profits are distributed to directors, officers, or members.
• Tax-Exempt Status: Many non-profit organizations qualify for tax-exempt status under section 501(c)(3) of the Internal Revenue Code, meaning they do not have to pay federal income tax on income related to their charitable purpose.
• Governance: Non-profits typically have a board of directors or a governing body to oversee the operations and ensure the organization stays true to its mission. The board does not receive compensation, except for reimbursement of necessary expenses.
• Eligibility for Grants and Donations: Non-profit organizations are eligible for a wide variety of grants and charitable donations. Being tax-exempt allows them to apply for government and private sector funding to support their work.

Types of Non-Profit Organizations:

• Charitable Organizations: These are non-profits focused on providing services for the welfare of others, such as food banks, homeless shelters, and international aid organizations.
• Educational Organizations: Non-profits that focus on advancing education, such as schools, universities, and educational foundations.
• Religious Organizations: These include churches, synagogues, mosques, and other places of worship. They are typically also eligible for tax-exempt status.
• Social Advocacy Groups: Non-profits that focus on social change and advocacy, including civil rights groups, environmental organizations, and political action committees.
• Cultural and Arts Organizations: Non-profits that promote culture, arts, and creativity, including museums, theaters, music societies, and other similar organizations.
• Health and Research Organizations: These non-profits may focus on health care, medical research, or promoting public health, such as hospitals, disease-specific foundations, or organizations working on medical research.

Non-profit organizations must obtain an EIN (Employer Identification Number) for several reasons, including tax reporting, opening a bank account, and hiring employees. It is similar to how businesses use EINs for federal tax purposes.

Church Organization

A church organization is a type of religious non-profit organization that is focused on worship, spiritual growth, and community service. Churches, as part of their religious activities, often provide religious services, education, charity, and social outreach. They can also own property, conduct religious ceremonies, and support various missions and causes.

Key Characteristics of a Church Organization:

• Religious Purpose: A church exists primarily for religious purposes, such as conducting worship services, providing religious education, and serving its congregation spiritually and socially. Its mission is focused on advancing the practice and principles of the faith it represents.
• Tax-Exempt Status: In the U.S., a church can qualify for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This means that the church does not have to pay federal income tax on donations and income related to its religious purposes.
• Public Charitable Status: Churches are considered public charities, meaning they are eligible to receive tax-deductible contributions from donors. These donations are typically not taxed, which encourages financial support from members and the public.
• Governance Structure: Churches typically have a governing body (a board of trustees or council) and leadership (such as pastors, ministers, or priests) responsible for overseeing religious activities, managing operations, and guiding the church’s mission.
• Religious Services and Activities: Churches conduct religious services such as Sunday worship, weddings, baptisms, funerals, and other faith-based rituals. They may also host youth programs, Bible studies, charitable events, and outreach programs.

Legal Requirements for a Church Organization:

• Incorporation: In most cases, it is recommended that a church be formally incorporated as a non-profit religious corporation under state law. Incorporation provides legal recognition and protection for the organization and its leaders.
• Obtaining an EIN: While churches are automatically granted tax-exempt status by the IRS, they may still need to obtain an Employer Identification Number (EIN) if they have employees or if they plan to open a bank account. An EIN is also used for reporting purposes if the church has unrelated business income.
• Maintaining Tax-Exempt Status: Churches must ensure they remain compliant with tax laws by adhering to IRS regulations. While churches are automatically exempt from federal income tax, they may still need to file annual Form 990 if they are a larger organization or if they have certain financial activities.
• Religious Activities: The IRS looks for a genuine religious purpose when recognizing a church's tax-exempt status. The church must primarily focus on religious activities, including worship, education, and spreading the religious message.
• Public Support Test: To maintain tax-exempt status, churches must not engage in excessive lobbying or political activities, and they must operate primarily for religious, charitable, educational, or other tax-exempt purposes.

Even though churches are generally exempt from paying taxes, they still need an EIN (Employer Identification Number) for administrative purposes. The EIN is required for:

• Opening a church bank account.
• Hiring employees.
• Filing tax forms, if necessary (e.g., for payroll taxes or unrelated business income).
• Accepting tax-deductible donations and issuing receipts.