A Limited Liability Company is also known as a LLC, a specific form of a private company in the United States. LLCs combine the taxation of a partnership or sole proprietorship with the limited liability of a corporation. It is a legal form of a company that protects its owners (or members) from personal liability of the company’s financial obligations but for tax reasons runs as a non-corporate business organization. It is not a corporation.

An LLP is similar to an LLC in that it merges pieces of a partnerships and corporations. All partners are protected – like a corporation – from mistakes, negligence or malpractice from other members of the company. Partners of an LLP are expected to have the same level of management responsibility. Profits are split amongst partners and tax liability falls on each member personally, not the LLP.

A C-Corporation business structure refers to a type of corporation in which business profits are taxed according to the Internal Revenue Code, Subchapter C. A C-Corporation’s profits are taxed separately from its owners. It is a for-profit, state-formed entity where most owners receive salaries and deductible “benefits” to avoid paying a “double-tax”. This double-tax happens when profits are paid out and are taxed again on a personal level.

An S-Corporation business structure refers to a type of corporation in which business profits are taxed according to the Internal Revenue Code, Subchapter S.  S-Corps are often created to avoid the double-tax issue problem common in C-Corps. In an S-Corporation only the shareholders are taxed. They have to pay state fees and file Articles of Incorporation with the state (as does a C-Corp), but an S-Corp also has to make a special tax election. Profits are not taxed on a corporate level but instead all profits (and losses) are directly passed to the company’s shareholders and paid on a personal level.

Partnerships can be very complex as there are a number of different types of partnership entities. This business structure hold the partners personally responsible for financial (and other) obligations. The partnership does not pay taxes but instead the profits and losses are passed on to the partners who file as though they are a sole proprietor.

The IRS defines a sole proprietor as an individual who owns an unincorporated business by himself or herself. Sole proprietors are 100% responsible and liable for their business. You must also pay Self-Employment Tax, the Medicare and Social Security taxes that employers normally pay for W-2 employees, as well as quarterly estimated taxes.