Are you passionate about education? Have you ever considered opening a private post-secondary institution of your very own? It’s a noble pursuit, one that can have incredible, rewarding outcomes for both you and your prospective students. But before you break ground on your passion project, it’s essential to understand how universities function from an organizational perspective.
So what is the best business structure for a university? The answer to this question depends on a handful of personal factors, such as how many owners/shareholders are involved and whether they are US residents. Let’s take a look at different structure types and some examples of business models that would suit them.
Before We Begin…
It’s worth noting that you don’t have to be a US citizen or even a green card holder to start a university in the United States of America. All that’s required is to have an agent of service of process in the US and a physical location for your company.
Let’s examine the different organizational structures that can work for a privately owned college or university:
LLC – Limited Liability Corporation
If you are a sole owner and a US resident, an LLC is likely the best option to protect your personal assets. Although there was a time when it was illegal to form an LLC with just one member, this is no longer the case.
Even though you are the ‘sole’ owner of the company, a sole proprietorship structure is usually best reserved for a one-person operation. Ultimately, a university or other post-secondary educational institution will never be a one-person operation, even if it only has one owner. As a business grows, various fiscal obligations and liabilities may arise, and as a lone owner, that’s not something you want hanging over your head. An LLC - or ‘limited liability company’ - protects an owner’s personal assets by keeping them separate from the business.
For a group of partners who are all US residents building a small startup, then an S-corporation may be more suitable.
That’s because an S-corporation is an entity that has less than 100 shareholders. An S-corp operates similarly to a partnership in that the participants work cooperatively and are allotted an equal share in the business’s net profits and losses. However, what separates an S-corp from a partnership are the unique rights and responsibilities that afford a corporation’s owners an added layer of legal protections.
For a non-resident, there’s only one choice: a C-corporation.
C-corps are an old form of business entity and are commonly used by large domestic companies. Although we don’t typically think of corporations as being one-person operations, it is possible—moreover, it’s the only feasible option for non-domestic entrepreneurs, making it tricky and rather expensive because of certain taxation laws. However, because C-corps are taxed at a corporate level, none of the losses or gains transfer to the shareholder’s tax return. As a result, shareholders only pay tax on the dividends from stock sales, meaning ‘non-resident aliens’ can, in fact, own shares of a C-corp.
To learn more about business entities, how they work, and which one is the right choice for your post-secondary institution, EEC is here to help. Get in touch with us today for a free consultation.