2.6. Organizational Structures

The traditional and simplest forms of business organizations are the sole proprietorship (for individuals) and the partnership (for more than one person). While these structures are not without benefits in the right situation, they present disadvantages: they do not shield their owners from unlimited liability, they do not survive their owners, and they are generally unsuited to complex business endeavors.

To address these shortcomings, many organizational structures have evolved over the years. In the United States, most entity types are created under state law, while others are creatures of the federal tax code. Which structure best suits a particular purpose is a matter of judgment and an analysis of the business’s current and expected future circumstances; there is no “perfect” business entity for all situations.

In analyzing organizational structures, bear in mind that one type of business entity can be part of another business entity; for example, a C corporation can have a subsidiary that is structured as a limited liability company, and can also be part of a limited partnership.

The following list of entity types excludes certain uncommon business structures, as well as structures that are limited to specific types of businesses, such as national banks, professional corporations, and limited liability partnerships.

C corporation (C corp). A C corporation is what most people think of simply as a corporation. (The “C” in the name refers to the subchapter of the Internal Revenue Code that deals with corporate taxation.) The corporate form is by far the most prevalent organizational structure for large and medium-sized businesses, especially publicly held businesses, and for many small businesses as well.

In the United States, a corporation is created by incorporating (filing articles of incorporation) in the state of its choice. The state of incorporation is typically either t