Limited Liability Companies
Limited Liability Companies (LLCs) are the newest form of organization in the USA. Picture them as a cross between a corporation and a partnership. They offer all the flexibility of a sole proprietorship or general partnership combined with the limited liability of a corporation. Because they are new and so flexible, the IRS has no idea how to classify these entities. So the IRS developed "Check the Box" regulations, which permit you to pick the best tax status for you. Better yet, you can change the tax status periodically without having to form a new entity or get new tax ID numbers - simply "check the box" again on the appropriate IRS form.

While LLCs appear to have all the advantages, there is one apparent disadvantage. When a business has multiple owners, disputes can be difficult to resolve. LLCs's are not required to hold any meetings or keep minutes, or even have articles of organization (although this is a very good idea). So in the case of a business dispute between owners (called "members") there may not be sufficient documentation to guide the members (or their lawyers) on how to amicably resolve the dispute.

Some business owners have organized themselves as non-profit corporations. Note that just because a Secretary of State grants non-profit status (which is very easy to get), does NOT mean that the IRS (and state department of taxation) will do so also. In fact, the IRS approval of tax-exempt status is very cumbersome and expensive to obtain. There are also several types of non-profits. Some are simply tax exempt, others can offer charitable write-offs to donors, and some have one of several special non-profit status set forth in the tax code. Few small businesses are organized as tax exempt entities. You should consult your CPA or lawyer before pursuing this course of organization to discuss the pros and cons.

Occasionally, businesses are operated under the form of a trust or foundation. This is quite rare. When trusts or foundations are involved, usually the business is organized as a corporation of LLC, with the trust or foundation owning the shares or membership. Some business owners have formed off-shore trusts and foundations to own their companies.

International Charters
You should consider offshore entities extremely carefully, for two  reasons. First, the IRS has very strict rules regarding reporting of offshore activities, and the IRS is even more brutal in this area than other areas. Also, some of the foreign forms of organization have no corresponding entity form in the US. Therefore, legal scholars are uncertain how the courts may treat them in most cases. Finally, offshore entities will be subject to the laws and integrity of the foreign jurisdictions and people who administer them. Differences in culture, political stability and legal structure as well as language misunderstandings can affect you in unintended ways. If this is an area of concern for you or you are considering forming an offshore entity, we suggest that you consult a specialist in this area.

Changing Organizational Forms
If you own a small business over a long period of time, there will be several occasions to change the form of business. There is no one perfect form of organization that will serve you for a lifetime. The tax laws and corporate law is constantly changing. At various times, corporate tax rates were lower than personal tax rates; at other times the reverse was true. Also, you may want to choose an organizational form that does not limit losses in the early startup years. Later you may want to use a "S" corporation to "suck cash" from the business. Finally, as you mellow into a "fat cat" owner, the "C" corporation will enable you to bury large portions of unused profits into various fringe benefits plans. You should consult your CPA or lawyer periodically to make sure you are still using the instrument that makes the most sense for where you are now and where you want to go over the next few years.