How to Capitalism.
I learned all about business entities so you don't have to! These summaries will 10x your career & understanding of the game that is being played in the USA.
Here we go.
LIMITED LIABILITY SPP’s
Here, I refer to the obvious choice of LLC’s over Sole Proprietorship or Partnerships as you don’t risk losing everything you own if things go south. Though, they’re primarily bound to the state in which they are registered, they can also operate in other states under certain conditions.
LLC
A private for-profit entity that you, or you and your friends, can own entirely! Generally is the GO-TO option nowadays for small-to-medium businesses just starting up. A blend of sole proprietorships/partnerships and the tax advantages & protections of S-Corps.
Investors & venture capitalists don’t typically fund LLC’s as they can’t easily play their influential ownership & political games with the company.
L3C
A low-profit LLC intended to be a hybrid between nonprofits and LLC's to promote social welfare & to make some money at the same time. Opens up funding options to program-related investments (PRI’s) for these individuals aka "members" wanting to make a difference & 501c3 criteria needs to be met to qualify. See nonprofits below.
L3C's are only valid legal entities in Vermont, Michigan, Wyoming, Illinois, Louisiana, Maine, Rhode Island, and Utah (to my knowledge). Rules vary by state.
CORPORATION
Cage-free from the state restriction of LLC's. All corporations inherently provide liability protection against your assets. Corporations require a board of directors (simply any group of people) along with a LOT more legal paperwork/headache.
S-Corporation
A special type of privately-held corporation that allows income/expense pass-through to shareholders/owners for federal tax purposes, but the max amount of shareholders is limited to 100. No separate corporate federal taxes (double taxation).
Hence, these are small fry players in the Corporate for-profit game. LLC's can elect to be taxed as an S-Corp.
C-Corporation
Privately or publicly held "full-fledged" corporation. Top dogs with global reach that can obfuscate & operate in the shadows if they wish. There is no limit to the number of shareholders & is more attractive to venture capitalists and other investors as there are no restrictions on ownership & classes of stock.
Only entity allowed to be traded to the public. The stocks you purchase are certificates of ownership of a slice of the pie that comprises the beast. In the kindest terms possible, this is legal gambling of these public companies in order to fund them. Win big, lose big & if you play stupid games, you win stupid prizes. Tread with caution.
B-Corporation
The newest corpo-kid on the block. They're a corporation required to balance financial interests with social and environmental considerations. Must publish a report to the public every year assessing their social & environmental performance against a 3rd party standard.
LLC’s can certify with B Lab (Nonprofit Organization) to become a “B-Corp Certified” company, but some states have special requirements, so YMMW on the State you live in.
B-Corporations, while an ideal solution to a world problem, are fairly new and there is not much consensus between States at this point in time. Mostly useful for branding/marketing purposes.
Nonprofit organizations (501c3)
A Corporation type structure requiring a specific business purpose to qualify for "tax-exempt status" which you apply separately for. Makes it so that donations & etc aren't taxable income.
TL;DR
Wanting to start a new business in your State?
Need monstrous investments to make your dream a reality?
Consider starting an L3C (if applicable to the State & the business under 501c3 restrictions), or a C-Corporation.
L3C’s can legally access a wider range of funding options as they promote social wellness. C-Corporations require a board of directors which will paint the business-political battlefield for the next… forever. Choose wisely.
Wanting to start with something smaller to avoid the grifters & business politics?
Consider an S-Corporation, LLC or L3C.
These entities will allow you to remain much more flexible as you figure things out with less risk of messing up Corporate tax laws.
Did I miss anything? Let me know on our socials!
