(1) Sole proprietorship A businessman can conduct his import business as a sole owner. All that is legally required is a business license issued by the local city government where the business is located. If the businessman wants to use a business name other than his legal name, then the fictitious name must be registered with the county govern- ment and advertised three times in the local newspaper.
(2) Partnership When more than one legal entity forms a business, it becomes a partnership. A partnership is also required to register its fictitious name with the county govern- ment. There are two kinds of partnership:
a. General partnership All partners are general partners who have unlimited liability for the business activities like a sole proprietorship.
b. Limited partnership A limited partnership must have one general partner and one or more limited partners who are liable up to their investment and do not participate in the
management of the partnership.
(3) CorporationA corporation is a legal entity. It acts like a living person in conducting a busi-ness, but the stockholders, that is, the owners of the corporation have a limited lia-bility up to their investments. A corporation must register with the state govern-ment. There are two types of corporation based on how a corporate income tax ispaid, that is, a C corporation and an S corporation¹.
a. C CorporationA C corporation is one that is taxed under Subchapter C of Chapter 1 of theInternal Revenue Code. It pays its own federal and state income taxes. When a cor-poration’s net income is distributed to stockholders as a dividend, stockholdersmust pay income tax on the dividend again resulting in double taxation on thesame income.
b. S CorporationAn S corporation is one that elects to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Like a partnership, it does not pay a corporate in- come tax, while stockholders enjoy the limited liability like a regular C corporation.
(4) Limited Liability Company (LLC)
An LLC is a company that enjoys both a limited liability like a corporation and no double taxation like a partnership. Owners of an LLC are called members. There is no maximum number of members and most states also allow single member LLCs. Members may include individuals, corporations, other LLCs, and foreign entities.