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Are you a LatAm based entrepreneur or investor interested in learning about the different types of corporate entities that are available in the U.S.?

If you are interested in forming a corporate entity in the U.S., or consider investing in a U.S. entity, please see below a summary of the six most commonly used business entities in the U.S. Certain default aspects of these entities may be amended, and also different entities may be combined to achieve the optimal structure for a particular type of business or investment.

1. General Partnership

A general partnership (GP) is an arrangement in which two or more persons agree to share in all assets, profits, and liabilities of a business. No state filing or other corporate formality is necessary to create a general partnership. Thus, general partnerships can exist without the creation of a separate legal entity. General partnerships are created by oral or written agreement among persons who, upon such agreement, become partners. The owners / partners are personally liable for the debts and other liabilities of the business. While forming a general partnership can be simple and efficient, it does not offer limited liability protection and can be inadvertently created by persons doing business together. Corporate entities can be part of a general partnership. Reporting requirements vary depending on the selected state.

2. Limited Partnership

A limited partnership (LP) is a business owned by two or more persons, with at least one of them serving as the general partner in charge of overseeing the management of the business. The general partner(s) of a limited partnership bear all the risk of liability for the debts of the business, while the limited partner(s) risk only their individual investment in the business. Most states regulate the formation of limited partnerships and require registration of the entity. Upon formation, the partners should enter into a written partnership agreement setting forth the rights and obligations of each partner. This document is not filed with a government entity. Corporate entities can be part of a limited partnership. Reporting requirements vary depending on the selected state.

3. Limited Liability Partnership

A limited liability partnership (LLP) is a type of partnership owned by two or more persons where every partner has limited personal liability for the debts of the partnership. A limited liability partnership offers flexibility with respect to the amount of control each partner retains. Limited liability partnerships allow limited liability even if the partners remain involved in the management of the business. Most states regulate the formation of limited partnerships and require registration of the entity. Upon formation, the partners should enter into a written partnership agreement setting forth the rights and obligations of each partner. This document is not filed with a government entity. Corporate entities can be part of a limited liability partnership. Reporting requirements vary depending on the selected state.

4. Limited Liability Company

A limited liability company (LLC) is a business entity which protects its owners from being personally liable for the company’s losses and liabilities. Owners of a limited liability company are called members. A limited liability company can be composed of members that own and control equal parts of the business or it can be managed by some members with different control and profit allocations. States typically charge an initial formation fee and ongoing maintenance fees. Upon formation, the members should enter into a written operating agreement setting forth the structure and management of the limited liability company as well as the profit allocations among its members. This document is not filed with a government entity. Corporate entities can be part of a limited liability company. Reporting requirements vary depending on the selected state.

5. C-Corporation

A C corporation (C Corp) is a business entity that is taxed separately from its owners. This structure allows for limited liability protection to its owners, who are not responsible for the liabilities of the corporation. Owners of a C corporation are called shareholders. C corporations are formed by an incorporator (a natural person) filing articles of incorporation with a state’s secretary, drafting bylaws, appointing original directors and officers, and issuing stock to those who have contributed money or assets to the corporation. C corporations are the most prevalent form of corporate organization. C corporations are required to hold annual shareholder meetings and have a board of directors elected by the shareholders. Corporate entities can be part of a C corporation. C corporations are subject to complex regulations.

6. S-Corporation

An S corporation (S Corp) is formed, structured, and managed like a C corporation in all material ways, except for federal taxation purposes. S corporations elect to pass corporate income, losses, deductions, and credits through to their shareholders (known as “pass-through” taxation). To be eligible to make this election, S corporations must comply with certain guidelines, such as not having more than 100 stockholders, and those stockholders may not be partnerships or corporations.

If you need help selecting the right type of entity and structure for your business or investment, avoiding common formation mistakes, or would like to learn how each entity is treated from a regulatory and tax points of view, please let us know!