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Business Entity Definitions

Below is a brief overview of common business classifications 

1. 1099 Independent Contractor

An Independent Contractor is a self-employed individual or entity that provides services to another business or person under a contractual agreement.

  • Key Features:

    • Paid via Form 1099-NEC (Non-Employee Compensation).

    • Responsible for their own taxes (income tax, self-employment tax, etc.).

    • Operates independently, with control over how services are performed.

    • No benefits, such as health insurance or retirement, provided by the client.

2. Sole Proprietor

A Sole Proprietor is an individual who owns and operates an unincorporated business by themselves.

  • Key Features:

    • No formal registration required (beyond necessary local/state business licenses).

    • The owner is personally liable for business debts and obligations.

    • Business income and expenses are reported on the owner’s personal tax return (Form 1040, Schedule C).

3. LLC (Limited Liability Company)

An LLC is a business structure that combines the liability protection of a corporation with the tax simplicity of a sole proprietorship or partnership.

  • Key Features:

    • Owners (called members) have limited personal liability for business debts.

    • Flexible taxation: Can be taxed as a sole proprietorship, partnership, or corporation.

    • Requires state registration and compliance with operating agreements.

4. Partnership

A Partnership is a business owned by two or more individuals who share profits, losses, and management responsibilities.

  • Key Features:

    • Income is passed through to partners and reported on their personal tax returns (Form 1065 for the partnership, Schedule K-1 for partners).

    • Partners are personally liable for business debts unless organized as an LLP (Limited Liability Partnership).

    • Flexible management structure.

5. C-Corporation (C-Corp)

A C-Corporation is a separate legal entity owned by shareholders, offering the strongest liability protection.

  • Key Features:

    • Pays corporate income taxes on profits 

    • Offers perpetual existence and the ability to raise capital through stock issuance.

    • Requires formal governance, including a board of directors and corporate bylaws.



Additional Information


How to Obtain an EIN (Employer Identification Number)

An EIN is a unique nine-digit number assigned by the IRS to businesses for tax purposes. While not required for sole proprietors without employees, an EIN is useful for opening a business bank account, building business credit, or establishing an LLC.

Steps to Obtain an EIN:

  1. Apply Online: The easiest method is through the IRS EIN Assistant. It’s free and immediate.
    Apply for an EIN online ADD EIN LINKhere

  2. By Mail or Fax: You can fill out Form SS-4 and send it to the IRS by mail or fax.
    Download Form SS-4

  3. By Phone: For international applicants, call the IRS at +1 (267) 941-1099.

Creating an LLC (Limited Liability Company)

An LLC provides personal liability protection for business owners, separating personal and business assets.

Steps to Create an LLC:

  1. Choose a Business Name:

    • Ensure the name is unique and compliant with state rules.

    • Check availability with your state’s business registry.

  2. File Articles of Organization:

    • Submit this document to your state’s business filing office (often the Secretary of State).

    • Fees vary by state, typically ranging from $50 to $500.

  3. Designate a Registered Agent:

    • This person or business receives legal documents on behalf of the LLC.

  4. Create an Operating Agreement (Optional but Recommended):

    • Outlines the LLC's structure, ownership, and rules.

  5. Obtain an EIN:

    • Required for tax purposes and opening a business bank account.