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A partnership is a business co-owned by two or more people. In a general partnership, the partners pool their time and abilities in the day-to-day operation of the business. Any member of the partnership can conduct business as an agent of the partnership. As in the sole proprietorship, profits and losses are treated as personal income, and all partners are personally responsible for any debts and liabilities against the business. A limited partnership gives only general partners the authority to conduct business. Limited partners are not involved in the day-to-day operation of the business and are liable for debts against the partnership only to the limit of their investment. Commonly, if one partner should die, a partnership must be dissolved.

A limited liability company is similar to a partnership or sole proprietorship, but the owners are not personally liable for business debts. Profits and losses are treated as personal income.

A C corporation is a separate legal entity. In other words, a C corporation in the eyes of the law exists as a separate “individual,” independent from its owners. A corporation is formed when papers are filed, usually with the state in which the corporation operates. The owners of a corporation are known as stockholders. They receive a return on their investment in the corporation as stock dividends. The stockholders of a corporation are not personally responsible for debts and claims against the business (unless they have guaranteed something personally). Stockholders are at risk only for the amount of money they have invested. And the corporation pays its own corporate income taxes.