On state levels, business organization forms have a whole range of designations. For tax purposes on a federal level, however, there are only six forms of organization. These forms are non-profit organizations, trusts, S-corporations, partnerships, corporations and sole proprietors.
Non-profit organizations are created for civic, artistic or charitable purposes. Their income is generally exempt from state and federal taxation, so they are frequently referred to as exempt organizations. Non-profit organizations have a substantial responsibility to report assets, income, and activities to ensure they remain in compliance with state and federal laws governing charities.
Trusts are generally created after the death of a person. They are usually designed to provide a continuity of the business activities and investments of the deceased.
S-corporations are similar to partnerships. They have a minimum of one, but no more than a hundred shareholders. If a shareholder provides his services to the S-corp, he must be paid a reasonable salary, separate from the distribution of losses or profits.
A partnership or unincorporated business is a separate entity from shareholders. It has at last one so-called "general partner" assuming unlimited liability and consists of two or more shareholders. All losses and profits are distributed to shareholders, regardless of any profits to be retained for purposes of cash flow by the business.
Corporations are incorporated and separate entities. They have one or more shareholders with limited liability protection. Corporations distribute or retain profits at their own discretion. They are assumed to be profit orientated and as such can have losses in unlimited numbers of years.
Sole proprietors, also called freelancers, independent contractors or consultants, are not incorporated businesses. No forms other than the form for business expenses and income have to be filled in.
