There are eight main types of business entities available in Iowa including:
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Partnership
- Corporation (for profit)
- Non-Profit Corporation
- Professional Corporation
- Limited Liability Company
In a Sole Proprietorship, generally, the business and the owner are virtually inseparable. The owner of a sole proprietorship has complete control over all aspects of the business and taxes are paid at the individual’s personal income tax rate.
A General Partnership is defined by law as an association of two or more persons to carry on as co-owners of a business. General partners are personally liable for the debts of a partnership.
A Limited Partnership is an organization separate from its partners. A limited partner’s rights and liabilities differ from those of a general partner.
A Limited Liability Partnership is a newer type of entity which affords protection from personal liability to limited partners without adhering to the more formal requirements of incorporated entities.
A Corporation (For Profit) is the most complex form of the business organizations. There are two types of corporations for profit: closely held corporation (Subchapter S) and a publicly held corporation (Subchapter C). In a Subchapter S corporation, a smaller business is allowed to have “flow-through” taxation, as if it were a partnership. Subchapter C corporations are taxed as a separate entity. Consideration of federal tax laws play a significant role in determining whether a subchapter S election should be made.
Shareholders of a corporation are generally protected from personal loss for corporate debt except to the extent of their investment in company stock.
A Professional Corporation is an organization which allows professionals to practice together with many of the benefits of a for-profit corporation.
A Limited Liability Company allows individuals to formally organize themselves and to limit their exposure to personal liability while still utilizing the benefit of flow-through taxation.
The type of business organization that is best depends upon the circumstances of each situation and careful analysis. FK&C will be able to assist you in determining the appropriate choice of business entity for you and in drafting the necessary documents. Contact us today.