> ## Documentation Index > Fetch the complete documentation index at: https://docs.baselayer.com/llms.txt > Use this file to discover all available pages before exploring further. # Business Structures Explained > Know how each type of business entity works, and what that means when you verify it. ## Why Business Structure Matters Business structure determines liability exposure, tax treatment, registration requirements, and verification complexity. Each structure carries different risk signals and requires tailored verification approaches. *** ### Sole Proprietorship An **unincorporated** business owned and operated by a single individual. Key characteristics: * **No separate legal entity** - the business and owner are legally the same * Often **not registered** with Secretary of State (except for DBAs/trade names) * Often uses the owner's **Social Security Number (SSN) as the Tax ID** instead of a separate EIN * No liability protection - owner is personally responsible for all debts * Common among freelancers, consultants, and very small businesses **Verification Challenge**: Since many sole proprietorships don't register with the state, traditional KYB methods (SoS lookups) won't find them. Alternative verification methods include TIN/EIN validation with the IRS and web presence analysis - review our [Sole Proprietorship Verification](https://docs.baselayer.com/docs/sole-prop-verification.md) guide for more details. *** ### Partnerships **General Partnership (GP)** * Two or more owners who share profits and liabilities * No formal registration required in most states (though recommended) * Partners have unlimited personal liability **Limited Partnership (LP)** * Has both general partners (unlimited liability) and limited partners (liability limited to investment) * Must be registered with the state **Limited Liability Partnership (LLP)** * Common among professional services (law firms, accounting firms) * Partners have limited liability protection * Must be registered with the state **Limited Liability Limited Partnership (LLLP)** * Provides liability protection to both general and limited partners * Less common, available in select states *** ### Limited Liability Company (LLC) The **most popular business structure** for small to medium businesses: * Provides liability protection (owners' personal assets are separate) * Flexible tax treatment (can be taxed as sole proprietorship, partnership, or corporation) * Less formal than corporations (fewer compliance requirements) * Owners are called "members," managed by members or appointed managers * Must be registered with the state *** ### Corporations #### C Corporation (C Corp) * Separate legal entity with unlimited lifespan * Owners (called shareholders) have limited liability * Subject to corporate income tax (double taxation: corporate profits + shareholder dividends) * Can have unlimited shareholders * Common structure for larger businesses and those seeking investment * Must file articles of incorporation with the state to register *** #### S Corporation (S Corp) An S Corporation is a C Corporation that has elected special tax treatment with the IRS. It provides corporate liability protection while avoiding double taxation. S Corp status is a tax election, not a structural difference visible in SoS records. The business appears as a standard corporation in state registries. S Corp status is confirmed through IRS records, not Secretary of State data (although a select number of states report the distinction between S Corp and C Corp). **The optimal way to verify the S Corp election of a business is to request the 1120S form.** **Characteristics:** * Formed as a regular corporation with the state (articles of incorporation) * Files Form 2553 with the IRS to elect S Corp tax status * Business profits and losses "pass through" to shareholders' personal tax returns * Shareholders pay individual income tax on their share of profits (whether distributed or not) * No corporate-level income tax **Key restrictions:** * Limited to 100 shareholders, must be US citizens/residents * More restrictions than C Corps * Only one class of stock allowed (can't have preferred stock with different rights) * Shareholders must be individuals, estates, or certain trusts (not corporations or partnerships) * Certain businesses ineligible (financial institutions, insurance companies, international sales corps) *** #### B Corporation (B Corp or Benefit Corporation) * For-profit corporation with social/environmental mission * Directors are legally required to consider impact on stakeholders beyond shareholders * Available in select states with specific registration requirements *** ### Nonprofit Organizations Organizations that operate for public benefit rather than profit distribution: * 501(c)(3) and other IRS designations for tax-exempt status * Must register with state Secretary of State * Different compliance and reporting requirements * Governed by a board of directors rather than owners/shareholders *** ### Professional Entities **Professional Corporation (PC) / Professional Association (PA)** Structures specifically for licensed professionals - doctors, lawyers, dentists, accountants, architects. * Similar to standard corporations but with specific state requirements * Liability protection for business debts (but not for professional malpractice) * All shareholders must hold required professional licenses Requirements differ significantly by state and profession *** ### Trusts Legal arrangements where trustees hold assets for beneficiaries. Can own businesses or operate as business entities. * Complex registration and tax treatment varies by trust type * Multiple categories of trusts (revocable, irrevocable, business trusts, etc.) * Uncommon as primary operating business structure Trust structures can obscure beneficial ownership. They usually require additional documentation to identify controlling parties. *** ### Trade Names (DBAs - "Doing Business As") "Doing Business As" names are not business structures - they're registered names that allow entities to operate under names different from their legal name. They allow a business to operate under a name different from its legal name: * Example: "John Smith" (sole proprietor) might register "Smith's Consulting Services" as a DBA * Registered at state or county level depending on jurisdiction * Does not create a separate legal entity * Multiple businesses can use similar DBAs in different jurisdictions. *** ### Why Structure Matters for Verification **Registration requirements:** Some structures must register with SoS (LLCs, corporations), others don't (sole props, general partnerships). This determines which verification methods work. **Liability and risk profile:** Limited liability structures protect owners personally, affecting credit risk assessment. Unlimited liability structures tie business and personal finances together. **Age and sophistication signals:** Business structure often correlates with maturity and complexity. Brand new Delaware C Corps with no operations may signal different intent than established local LLCs. **Tax implications:** Structure affects how income is reported and taxed, which impacts financial analysis and document requirements during underwriting. This documentation is built and hosted on [Mintlify](https://mintlify.com), a developer documentation platform.