From Startups to Corporations: Types of Businesses in the USA Explained

  It often makes financial sense to organize in the state where you live or where you plan to do business. But if you're a startup trying to get outside funding, investors will probably demand that you incorporate in Delaware because it has a good business climate.Even though Delaware isn't a "tax haven," forming a business there can help your taxes. Your company won't have to pay Delaware corporate taxes if it doesn't do business there. In the same way, people who don't live in Delaware don't have to pay state taxes on equity they own. Companies still have to pay taxes in the state where they are based, so these benefits get rid of the need for them to pay taxes in two different states. 

But Delaware companies still have to pay a franchise tax to Delaware every year.(And no, you don't have to move your business to Delaware in order to organize there.) It used to be necessary to hire a skilled lawyer to set up a C-corp, and many entrepreneurs still do for a variety of reasons, but it's no longer necessary. Amerson says, "There's been a big change in the last 10 years." There are a lot of low-cost online services that will help you with the paperwork and give you simple advice. If you want a lawyer right away, talk to people you know, like your agent or bank. For instance, SVB gives out recommendations for law firms. Sites like LawTrades and UpCounsel can also help you find a lawyer on their own. Amerson says to try to work out a deferred fee agreement with a well-known law company if you want their help and a wider range of services. Usually, the company offers to work for free as long as they know they won't get paid until your business hits a certain goal, like raising more than $1 million.

1.One-person business : Making a sole proprietorship is the easiest thing for small business people who don't have venture capital funding to do when they first start out. A sole proprietorship is a business that is owned and run by one person and is not organized. There's no need to register or fill out an application. However, you might want to pay a small fee to get a DBA (doing business as) license. The DBA paperwork protects your right to use a certain business name. But it's hard to change the name of your business after you register it.  A sole company is easy to set up, but it does have some problems. For instance, you won't be able to start an account at many commercial banks, like Silicon Valley Bank. This is also a good choice if you're working alone, like when you're coding prototypes, says David Raynor, founder of Accelerate Legal, a law company in San Francisco that helps tech startups. "But as soon as there are two of you, problems arise, such as who owns the secret ideas?" Raynor warns. Now might be a good time to think about a different kind of legal organization. In the same way, you'll need to incorporate if you want to get venture capital funds. 

2. Limited Liability Company : An LLC, or Limited Liability Company, is another popular way for a business to be set up. There are several reasons why an LLC is a good idea: The price is pretty low. You include the company's business information in your own tax return. The owners of an LLC are not responsible for the debts and legal responsibilities of the business. Some bad things about LLCs are:You'll probably have to pay taxes because you work for yourself. It will be harder to get people to spend. If you lose a person, it can fall apart. 

3. S-Corporations : Most S Corps are small businesses, and they combine the benefits of being incorporated with the tax-free benefits of a partnership. Like an LLC, you can give profits to owners without having to pay federal taxes on the business. There are some things that S corps can't do: Only 100 owners can own shares, Can only give out one type of stock Only allow owners who are citizens or residents of the US, certain trusts and estates, or tax-exempt organizations to buy shares. Company Forms (C-corps) As a C-Corp, most startups are set up in the same way that Apple, Google, and most other big companies in the US are. A C-Corp is a completely separate legal entity that has to file taxes and make yearly reports. A board of directors must also be chosen. At first, it may seem like you don't need all that extra organization, but if you want to raise money, a C-Corp is usually the best choice. Setting up the C-corp as soon as possible is best for your business. 

Founders should join the company as soon as possible to avoid being held personally responsible. When your business is a corporation, it takes on this risk, so third-party claims usually won't hurt your personal funds. Before putting money into your business, investors at every stage, from angels to venture capitalists, will make you incorporate. Investor money that you get can't be mixed with your own money. To avoid this, you should establish your business so that you can open a bank account in its name, keep company funds separate, and keep financial records. IP like patents, copyrights, logos, and trade secrets will start to build up as your business grows. These are important things, and you need to make it clear right away that your company owns the IP. It is impossible to break the chain of IP rights and titles. Corporate ownership is the best way to make sure of this. If it's not clear who owns intellectual property, it will affect deals, relationships, and investments.