Every private college, university, or vocational education program needs State approval to operate a post secondary educational institution in the United States and must adhere to the regulations of the state. But before you even think about seeking the license to operate, you have first to consider the structure of the business you are building.
What Business Structure is Right For You?
There are essentially four main types of organizational structures for US businesses, and each has a unique tax structure and income and liability guidelines that dictate its operations. Today, we’re going to talk about those structures to help you find the one that’s right for you.
A sole proprietorship is one of the simplest and most common organizational structures for businesses. This structure gives the owner - or owners - total control over all business operations. However, while a sole proprietorship cuts out a lot of hierarchical complexity and red tape associated with large businesses, it also puts a lot of responsibility on the proprietor’s shoulders.
In this kind of organizational structure, the sole proprietor is in charge of keeping their own records and paying taxes for self-employment income. However, the proprietor is afforded virtually zero protection from their business dealings: they are solely—and personally—responsible for the company’s debts and financial obligations. Typical sole proprietorship businesses typically include home-based businesses, shops/retail businesses, and one-person consulting firms.
The flexibility of sole proprietorships can be beneficial for small businesses, but the lack of a safety net can be intimidating for some aspiring entrepreneurs.
LLC stands for ‘Limited Liability Company,’ which is just what it sounds like. But, unlike sole proprietors, LLC owners—called ‘members’—are protected from liability and many of the obligations that come with business ownership. So, if you chose to operate your company as an LLC, the structure effectively protects your personal assets from business claims and debts. Plus, it’s simple to set up and manage.
This structure is considered a hybrid, as LLCs can be formed from either partnerships or corporations. The structure of an LLC can also dictate its taxation. Certain companies like banks and insurance brokers are restricted from operating as LLCs, as lack of liability could compromise the organization’s ethics.
Corporations are different from other kinds of businesses in that they are entirely separate legal entities. The traditional rules don’t apply to them, and they’re instead accountable to their very own set of guidelines. Corporation owners are protected from any claims that may be filed against the entity’s activities. While this may seem like an easy way to skirt rules and limitations, corporation owners are hemmed in by their obligations, responsibilities, and the financial resources needed to float this kind of business structure.
There are two different ‘subchapters’ of corporations:
- S-Corporation: An S-corporation has less than 100 shareholders. It operates as a partnership but offers additional legal protections to its owners.
- C-Corporation: A C-corporation is a distinct legal entity that is responsible for filing its own tax returns. In the court system, it is effectively treated like a human individual. Corporation owners are obligated to split ownership via stock shares.
Despite the simple overview, these structures are complex, and navigating them can be complicated and confusing. Fortunately, is here to guide you through the process and help you make the best choices for the future of your education startup.