Business Structures

Choosing the type of business entity for your natural resource enterprise has tax, paperwork, and liability implications. The correct business structure can save you time and money and protect your personal assets. The types of business structures are:

The lists below provide a rough overview of the different types of business entities. Visit the IRS's website for more detailed information and downloadable forms.

Sole Proprietor

  • Owned by one person
  • Business does not exist apart from the owner
  • Must pay self-employment tax
  • Income and expenses from business included on your personal tax return (single income taxation)
  • Unlimited liability
  • You are personally responsible for business liabilities
  • Hard to raise money for a sole proprietorship businesses
  • Business earnings are taxed only once
  • Report income on schedule C of 1040 tax form

Read an article by the IRS about the sole proprietorship business classification.

Limited Liability Company

  • Shields your personal assets by limiting your liability
  • Must file an annual report with state (secretary of state)
  • Requires an operating agreement for more than one member
  • Company pays no income tax
  • Income is passed through to company's members
  • Member must pay self-employment taxes
  • No limitation to the number of members
  • More easily financed that sole proprietorships or partnerships

C Corporation

  • Can be publicly or closely held
  • Shields the shareholders' personal assets by limiting personal liability; corporation is an entity separate from owners
  • The corporation pays income taxes at the corporate level
  • Income distributed to owners as dividends is taxed at the corporate level and as taxable income (double taxation)
  • There are lots of legal formalities in the formation process
  • More complex rules and regulations
  • Financing is much easier to get

Read an IRS article about corporations.

S Corporation

  • Shields shareholders' personal assets by limiting their liability
  • Corporation must file annually with secretary of state’s office
  • Generally the corporation is exempt from federal income tax
  • Report the flow-through of income and losses on shareholders' personal tax returns; assessed at individual income tax rates
  • Distributes dividends in proportion to shares held
  • Limited to 100 shareholders
  • There are lots of legal formalities in the formation process
  • More complex rules and regulations
  • Financing is much easier to get

Read an article by the IRS about the benefits and tax implications of an S Corporation.

General Partnership

  • Owned and operated by two or more persons carrying on a business
  • Operates in accordance with a partnership agreement (not required, but recommended)
  • Must file an annual information return
  • Business does not pay income tax; individual partners do
  • Individual partners pay self-employment tax
  • Profits and losses pass through to the partners
  • Business profits must be reported on personal income tax returns even if they weren't distributed
  • No protection from liability is granted any partner
  • Full liability for any partner's actions fall on all partners

Read an article by the IRS on general partnerships as a business structure.

Other Publications

Selecting a Business Structure (PDF)
Agricultural Economic, Kansas State University

This 24-page informational guide to forming businesses covers the different legal forms of businesses in great detail and will assist you with determining your business structure. It was printed in 2000, so keep in mind that some information may have changed.

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