Key Terms
Three foundational decisions before anything else
1. What is the business purpose?
For-profit
Earns revenue, distributes profits to owners, subject to taxes. Can be privately owned (LLC) or publicly traded (corpora
Not-for-profit (NFPO)
Furthers a social cause; surplus revenue goes back into the mission, not to owners. No shareholders.
Closely held corporation
Shareholders directly manage, fewer formalities required. Common in small startups.
Advantages
Free to form, no formalities, complete control.
Required formalities
Bylaws, annual reports, shareholder/director meetings, minutes, voting records, separate bank accounts.
Pass-through taxation
Profits pass to shareholders, taxed at personal income rates. No corporate-level tax.
B corporation
Certified through a formal audit process. Must meet high standards for social and environmental performance, transparenc
Benefit corporation
Recognized by state law (about 30 states). No certification required.
Publicly held (publicly traded)
Stock can be bought and sold on a public exchange. More capital access; more regulation.
Privately held
Stock not available to the general public. Family, friends, or private investors hold it.
Formation requires
Articles of formation filed with the state + operating agreement.
Member-managed
Owners run the business directly. Manager-managed: owners delegate operations to a professional manager.
Single-member LLC
Default taxation as a sole proprietorship. Can elect to be taxed as a corporation.
Constraints
Most states prohibit nonprofits from operating as LLCs. Banks and insurance companies generally cannot be LLCs.