Business Structure Types
Every business must have a structure. There are a number of ways to structure your business under Nebraska law. Some of the most common business structure types are:
- sole proprietorships
- limited liability companies (LLC’s)
- limited partnerships
- nonprofit corporations
Nebraska Business Structure Types: Sole Proprietorship
A sole proprietorship is one person business that has no separate independent existence – the owner and the business and one and the same. Unlike a corporation or an LLC, you don’t have to file documents with the Nebraska Secretary of State to create a sole proprietorship. If you go into business by yourself and do not form some other entity you are automatically a sole proprietorship. Because the business and the owner are identical, the owner reports his business income and losses on his personal tax return. The owner is also 100% personally liable for any business obligations. Most business owners don’t want to be personally liable for their business debts, and thus they choose to form a corporation or a limited liability company. (See below).
Nebraska Business Structure Types: Partnership
A partnership is a relationship between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. It is not necessary to file any paperwork with the Nebraska Secretary of State to create a partnership. Each partner includes his or her share of the partnership’s income or loss on his or her tax return. Because each partner is personally liable for the full amount of the partnership’s business obligations, many people will prefer to form a corporation or a limited liability company rather than a partnership.
Nebraska Business Structure Types: Corporation
A corporation is an entity created by filing articles of incorporation with the state. Because a Nebraska corporation is separate entity from its owners, the owners are not personally liable for the corporation’s obligations; this limited liability offered by incorporation makes it a very attractive business structure for many people. A corporation files a separate corporate tax return each year, and the individual owners are taxed only on the money they take out of the corporation as wages, salaries or dividends.
Nebraska Business Structure Types: Limited Liability Company
A limited liability company is like a corporation because its members are considered separate from the company, and hence they are not personally liable for the company’s debts. Unlike a corporation, though, a Nebraska LLC does not necessarily file a separate tax return each year. An LLC can be taxed like a partnership, with each member being allocated a share of profits and losses. In short, an LLC offers the limited liability of a corporation and the ability to be taxed like a partnership if that is what the members want.
Nebraska Business Structure Types: Limited Partnership
A limited partnership is a partnership with one general partner and a number of investors (limited partners). The general partner manages the partnership and is personally responsible for the partnership’s debts. The limited partners are not personally liable for the debts of the partnership, but have limited control over the partnership’s affairs. Limited partnerships are complicated and require guidance from an attorney familiar with them.
Nebraska Business Structure Types: Nonprofit Coporation
Nonprofit corporations do not have owners. A nonprofit corporation can apply for tax exempt status under Section 501(c)(3) of the Internal Revenue Code. A 501(c)(3) entity is usually formed for a charitable, educational, religious, literary, or scientific purpose. A nonprofit raise funds by applying for grants and soliciting donations. The federal and state governments generally don’t tax money taken in by nonprofit corporations. The Internal Revenue Service regulates nonprofits to make sure that they are not abused for purposes inconsistent with the laws that allow them. While 501(c)(3)’s are the best known tax exempt nonprofits, there are many other types of 501(c) entities, so it is best to consult an expert if you plan to seek federal tax exempt status for your nonprofit.
What types of business structure type is appropriate for you?
Choosing a business structure type is an important legal decision and should be done in consultation with a qualified Nebraska business law attorney. To schedule a consultation with an Omaha business attorney, call Thompson Law Office at 402-934-0198 or toll-free 1-888-934-0198. You may also schedule a consultation online right now here.