The basic types of business organizations are sole proprietorships, partnerships, C corporations, S corporations, limited liability companies (LLCs), and limited liability partnerships (LLPs).

  • Of all small businesses, roughly 78 percent are sole proprietorships;

  • Eight percent are partnerships; and

  • Fourteen percent are closely held corporations.

The owners of unincorporated businesses are usually referred to as "owners", while in corporations they're called "shareholders" or "stockholders". Owners of limited liability companies are called "members". Unless we're specifically talking about one or the other, we'll refer to them collectively as "principals".

Legal and technical distinctions between the different forms of business affect how you deal with them. We can only cover the highlights. For additional information about each form of businessownership, and to keep up with their evolving tax treatment, see technical reference sources such as the Advanced Underwriting Service (Dearborn Financial Publishing, Inc.) or Advanced Sales Reference Service (The National Underwriter Company).

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