HOW TO CHOOSE A BUSINESS STRUCTURE

Choose a Business Organization Structure

While there are many different business organization structures you may choose for your business, this guide will focus primarily on the five most common types used in Oregon - Sole Proprietor, General Partnership, Limited Liability Company, Business Corporation, and Nonprofit Corporation.

Ownership, liability, management control, and taxation are just a few of the primary considerations when selecting a business organization structure. Each type has its own advantages and disadvantages. If you have questions on which form is best for your particular situation, please consider consulting:

An attorney;
A certified public accountant;
One of Oregon’s Small Business Development Centers;
If business is in a regulated industry, contact the appropriate State licensing or regulatory agency.

Assumed business name registration required when owner’s “real and true” name is not part of the business name (Note: corporation and limited liability company name is the “real and true” name)
Governing documents are internal to the business, they are not filed with the Corporation Division
Limited liability protection may be forfeited by the courts in cases of fraud or misconduct
Charities (public benefit nonprofit corporations) must have at least three directors
Additional business, payroll and property taxes may also apply

Sole Proprietor

Owned by one owner
Unlimited personal liability for debts of the business
Owner responsible for all decisions and control of the business
Owner reports and pays all taxes on personal tax return
Property is not owned separate from personal property, owner can sue and be sued
Registration with Corporation Division not required, unless an assumed business name is used

General Partnership

Owned by two or more partners
Unlimited personal liability for debts of the business, and business actions of other partners
Fiduciary responsibilities to other partners include honesty, loyalty, candor, due care and fair dealing
Partners share decisions and control according to the partnership agreement
Each partner reports and pays their share of taxes on personal tax returns
Property is not owned separate from personal property, partners can sue and be sued
Registration with Corporation Division not required, unless an assumed business name is used

Limited Liability Company

A legal entity, separate from the owners
Owned by one or more members
Members have limited liability for debts of the company
May be managed by members or a manager as specified in the operating agreement
Can choose to be taxed as a corporation, or like a partnership (income passed through to owners)
May own property, sue and be sued
Registration with Corporation Division required

Note: An LLC is a State designation and NOT a Federal designation. For Federal purposes, you are a sole proprietor, a partnership, or a corporation. See LLC information here.

Business Corporation

A legal entity, separate from the owners
Owned by one or more shareholders
Shareholders have limited liability for debts of the corporation
Board of directors oversee major policies and decisions, and appoint officers
Managed by officers (President, Secretary) as specified in the bylaws
Taxed as a corporation, shareholders taxed on dividends and capital gains
May own property, sue and be sued
Registration with Corporation Division required

Nonprofit Corporation

A legal entity, separate from the members, directors, and officers
Does not have owners, assets must be disbursed to another nonprofit upon dissolution
Members, directors, and officers have limited liability for debts of the corporation
Board of directors oversee major policies and decisions, and appoint officers
Managed by officers (President, Secretary) as specified in the bylaws
Taxed as a corporation, unless tax-exempt
May own property, sue and be sued
Registration with Corporation Division required

Benefit Companies

An Oregon Business Corporation, Professional Corporation or Limited Liability Company can also elect to become a Benefit Company under a new Oregon Law.

An Oregon Benefit Company is a type of Corporation of Limited Liability Company (LLC) that wants to consider impact to society and the environment in addition to profit in the businesses decision-making process. Benefit companies differ from traditional corporations and LLC’s in regards to their purpose, accountability and transparency.

The purpose is to create a general public benefit, which is defined as “a material positive impact on society and the environment, taken as a whole, from the business and operations of the company.”

An Oregon Business Corporation, Professional Corporation of Limited Liability Company that would like to be a benefit company must:

Include a statement (usually in the optional provisions) in the Articles of Incorporation or Organization that says, “The Corporation (or Limited Liability Company) is a benefit company subject to sections 1 to 11 of Ch. 269, Oregon Laws 2013.”
Adopt a third-party standard to assess performance against, and
Annually prepare a benefit report identifying the actions and methods used to provide a general or specific public benefit, any circumstances that hindered or prevented a benefit, and assess how well the benefit company met or exceeded the third party standard.

For more information on becoming an Oregon Benefit Company,