So, you're thinking about incorporating...

When considering incorporating, you should ask yourself two questions: what is my main goal and how will I handle my earned revenue?

If your goal is something insular that just affects you or a few other people, and you feel comfortable taking personal responsibility of any profit, debt, or legal action that results from this goal, you do not need to incorporate. This type of business structure is called sole proprietorship. Go and live your life! Spend your time on other aspects of your goal.

If your goal involves a few other people, such as someone who will work just as hard as you towards this goal and has a unique skill set required by your goal, you have two options for this partnership: you could both take personal responsibility of any profit, debt, or legal action that results from the goal (which would be simply called a partnership) or you could form a Limited Liability Company that separates your personal income from your goal's outcomes.

Forming a Limited Liability Company only requires one person, so you can achieve the liability protection of a company while having full control the goal.

If your goal involves many other people, such as a group with a shared hobby or a community of people willing to donate their time and money, consider incorporating as a Not-for-Profit or Non-Profit. Yes, there is a difference!

Non-profits have a public, charitable mission. Think American Red Cross.

Both non-profits and not-for-profits are run by a small group of people (called the board of directors) and are not owned by the founder(s). The board of directors are initially appointed by the founder(s) and named in the formation documents. Each position on the board, such as president, treasurer, and secretary, has its own duties; the board works together by researching and voting on major decisions. Term limits, specific duties, and the percentage needed for a majority vote are all determined by the founders in the formation documents and can later be amended by the board.

For both non-profits and not-for-profits, the organization's profits are not distributed to any shareholders or board members and are instead invested back into the organization. Fixed salaries are usually paid to employees or consultants of non-profits and not-for-profits, but monetary compensation of board members is not common.

However, not-for-profits are not required to work for the public's well-being; they can be insular and focused on only one group of people. An example of this would be a neighborhood sports league or a Sorority.

Thus, if your goal involves a group of people with a shared hobby or location, you could form a membership-based not-for-profit in which every "member" is involved in decisions. Members would appoint the board of directors, could remove a director, change the bylaws, or even dissolve the not-for-profit. This type of incorporation would explicitly encourage financial contributions and involvement from each member, such as a $100 annual membership fee.

If your goal requires a lot of donors, but only needs a few people to decide what to do with that money, you could form a nonmembership non-profit. You only need three people to start a nonmembership non-profit in the state of Michigan; label one person as President, one as Treasurer, and one as Secretary. This forms the bare minimum of a board of directors. Some states, such as Utah, allow one person to exist as all three of those board members.

Charities that serve the general public may offer exclusive access to concerts or a behind-the-scenes tour to generous donors and call it a "membership" but are legally a nonmembership non-profit. These "members" do not have any decision-making power, but the informal designation takes no extra legal action and can be used in the organization's advertising and fundraising materials. This makes donors feel more included and personally invested in an organization!

I want to incorporate!

Regardless of the type of non-profit or not-for-profit, the organization is not automatically tax-exempt and must apply for this status. Successful non-profit or not-for-profits exist without tax-exempt status! They are just required to pay certain taxes.

Keep in mind, if an organization is not tax-exempt, donors will not receive a personal tax deduction for donating. Some donors may be less likely to donate in this case.

Read more about tax-exemption

While ownership laws, taxes, liability rules, and filing requirements vary by state, here is a general chart that features an overview of the main types of business structures in the United States. Keep in mind that ownership simply refers to legal responsibility. Some musical bands or chamber groups function as a sole proprietorship by choosing one member of the group to be legally responsible for the entire entity, for example.

S corp is not solely a business structure; it are a type of tax status available in only certain states. Thus, it is possible for an LLC to be taxed as a C corp, S corp, or a nonprofit if purpose of the organization makes it eligible and certain documents are filed with the federal or state government.

Business Structure	Ownership	Liability	Taxes	Key Points
Sole Proprietorship	One person	Personal liability	Self-employment tax and personal tax	Complete control with complete personal liability
Partnership	Two or more people	Personal liability unless specifically structured as limited partnership	Self-employment tax (unless limited partnership) and personal tax	General partner always has personal liability, even during limited partnership
Limited Liability Company (LLC)	One or more people	Owners are not personally liable	Self-employment tax and personal or corporate tax	Lower tax rate than corporation
Corporation (also known as a C Corp)	One or more people	Owners are not personally liable	Corporate tax	Strongest protection from personal liability
S Corporation (also known as an S Corp)	Fewer than 100 people, includes trusts and estates; 0 non-residents of the U.S.	Owners are not personally liable	Personal tax	This is a tax status: one must file with IRS to achieve S Corp status, and some states do not offer this
Benefit Corporation	One or more people	Owners are not personally liable	Corporate tax	For-profit but with a clear public benefit/ mission
Nonprofit or Not-for-profit	Board of Directors with term limits	"Owners" are not personally liable	Profits cannot be distributed to members; can easily register for tax-exempt status but otherwise taxed as a corporation	Organized specifically for charity, education, religious, literary, or scientific work