When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

Q:	What are the state formation requirements for different business entities types?
A:	Sole Proprietorship: No state filing required. Owned and operated by a single, specific individual. C Corporation: State filing required. S Corporation: State filing required. No more than 100 shareholders. Nonresident aliens are not eligible. Partnership: No state filing required. Owned by two or more partners. Limited Liability Company: State filing required.
Q:	What are the main differences on business entities types?
A:	Sole Proprietorship: A sole proprietor has unlimited liability because the sole proprietorship is not a separate legal entity. A sole proprietor has full control of management and operations. C Corporation: Shareholders are not responsible for the debts of the corporation. Management reports to the directors, who are elected by the shareholders. S Corporation: Shareholders are typically not responsible for the debts of the corporation.  Management reports to the directors, who are elected by the shareholders. Partnership: General partners are liable for the debts of the partnership. Partners may have an oral or written operating agreement. Limited Liability Company: Members are not personal responsible for the debts of the LLC. An LLC can opt to be managed by its members or managers.
Q:	What are the taxation requirements for different business entities types?
A:	Sole Proprietorship: Not a separate taxable entity. A sole proprietor pays all taxes on his/her individual return. C Corporation: Taxed at the entity level. Dividends paid to owners are also taxable income for them. S Corporation: Generally, no tax at the entity level. Income and losses are passed through to shareholders. Partnership: Generally, no tax at the entity level, but must file the information return annually. Income and losses are passed through to partners. Limited Liability Company: Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”).
Q:	What is the taxation classification rule for Limited Liability Company?
A:	By default, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.
Q:	How to make the taxation classification election, and what is the effective date of election?
A:	An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification Election, to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances.