Choose a Business Structure

Choose a Business Structure

Choosing the legal structure for a business is one of the most important steps to starting a business.  The type of business structure chosen will determine who owns the company, influence day-to-day operations, determine tax filing requirements, and determine what assets will cover business liabilities.  Do not rely solely on this overview; consult an attorney, accountant, or business counselor for additional guidance about choosing a business structure.  Also, regardless of the entity type selected, be sure to read and follow the requirements in state law carefully.

Types of business structures

• Corporation
• Limited Liability Company
• Limited Liability Partnership
• Limited Partnership
• General Partnership
• Sole Proprietorship

Corporation
A corporation is a legal entity, separate from an individual, that is comprised of three groups of people: shareholders, directors and officers. As a separate legal entity, a corporation can shield owners from personal liability. A corporation is managed and controlled by a board of directors that is elected by the corporation’s shareholders. The following are key features of a corporate structure.

• Shareholders generally are shielded from claims/liability against the corporation.
• A corporation generally is responsible for the debts and obligations of the business.
• A corporation pays taxes on profits, and shareholders may pay taxes on any dividends paid by the corporation.
• A corporation is required to register with the Secretary of State, maintain a resident agent/registered office, and file an annual report.
• Filings with other state agencies may be required depending on the type of activity of the business.

Limited Liability Company (LLC)
A limited liability company provides the limited liability benefits of a corporation with the tax and flexible management benefits of a general partnership.

• Members (owners) of an LLC are not personally liable for the company’s debts or other liabilities.
• An LLC may receive pass-through income tax treatment similar to a partnership, depending on the structure of the LLC.
• Members of an LLC may be involved in the management of the business without incurring personal liability.
• An LLC is required to register with the Secretary of State, maintain a resident agent/registered office, and file an annual report.
• Filings with other state agencies may be required depending on the type of activity of the business.

Limited Liability Partnership (LLP)
A limited liability partnership is a partnership in which the personal assets of each partner may be provided protection from claims against the partnership itself or against the actions of other partners.

• An LLP is required to register with the Secretary of State, maintain a resident agent/registered office, and file an annual report.
• Filings with other state agencies may be required depending on the type of activity of the business.

Limited Partnership
A limited partnership is a partnership with one or more general partners with generally the same liability as that of partners in a general partnership, and one or more limited partners that generally have limited liability.

• A limited partnership must be formed in writing between one or more general partners and one or more limited partners.
• General partner(s) generally manage(s) the partnership.
• An LP is required to register with the Secretary of State, maintain a resident agent/registered office, and file an annual report.
• Filings with other state agencies may be required depending on the type of activity of the business.

General Partnership
A general partnership is an association of two or more persons to carry on as co-owners of a business for profit. Partnerships have specific attributes, which are defined by Kansas law or by a partnership agreement.

• Partners share in the rights and responsibilities to manage the business.
• Partners are responsible for the debts and obligations of the business.
• Distribution of profits and losses, allocation of management responsibilities, and other issues affecting the partnership can be defined in a written partnership agreement.
• The partnership may, but is not required to, register with the Secretary of State.
• Filings with other state agencies may be required depending on the type of activity of the business.

Sole Proprietorship
A sole proprietorship is a business owned and run by one individual with no distinction between the business and the owner. The owner is entitled to all profits and is responsible for the business’ debts, losses, and liabilities.

• Business assets and liabilities are not separate from the owner’s personal assets and liabilities.
• The owner receives the profits and takes the losses from the business.
• The owner is responsible for the debts and obligations of the business.
• Income and expenses of the business are reported on the owner’s/proprietor’s individual income tax return and profits are taxed at the owner’s individual income tax rate.
• Sole proprietors do not register with the Secretary of State.
• Filings with other state agencies may be required depending on the type of activity of the business.