Business Structures
Click the icons below to review the different types of business structures. Once you complete the review, click the arrow icon at the bottom of page to apply your knowledge to a real-world situation.
Sole Proprietorship
Partnership
Combination
Cooperative
Limited liability company (LLC)
Nonprofit Corporation
C Corporation
S Corporation
Close Corporation
B Corporation
Ready to apply your knowledge? Click on the arrow!
Business Structures
Read each scenario below, then drag it to the business structure that best fits. Once all scenarios are placed, check your answers by clicking the light bulb in each box. You can also click the plus sign ("+") to learn more about why each scenario matches its business structure.
A startup seeking investors.
A family bakery wanting simple taxes.
A sustainable clothing brand prioritizing social impact.
A nonprofit animal rescue.
Sole Proprietorship
C Corporation
B Corporation
Nonprofit Corporation
Continue to the next page
Business Structures
Read each scenario below, then drag it to the business structure that best fits. Once all scenarios are placed, check your answers by clicking the light bulb in each box. You can also click the plus sign ("+") to learn more about why each scenario matches its business structure.
A family-owned manufacturing company with a few close relatives as owners.
Two siblings opening a small café together.
A boutique software startup with outside investors.
A neighborhood cooperative grocery store.
An eco-friendly consulting firm wanting liability protection and flexible taxes
Partnership
S Corporation
Close Corporation
Cooperative
Limited Liability Company (LLC)
Continue to the next page
Great Work!
This learning activity is adapted from the "U.S. Small Business Association" and is licensed under Public Domain. All instructional content, including AI-assisted adaptations and custom interactive learning activities created on Genially is licensed by Saylor Academy under the 'Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-NC-SA 4.0) license. All Genially proprietary elements such as templates, themes, built-in assets, stock media, and other “Genially Content” remain subject to Genially's Terms of Service and are not covered by this Creative Commons license. These elements must remain embedded in the course and cannot be reused or redistributed independently.
A family-owned manufacturing company with a few close relatives as owners.
Close Corporation
B Corporation
A B corporation (benefit corporation) is a for-profit corporation recognized in many states that pursues both financial profit and a defined social or public benefit. It differs from a C corp in mission and accountability, but it is taxed the same way. Shareholders expect the company to meet its public-benefit goals, and some states require annual benefit reports to show the company’s positive impact. While companies may choose to get third-party B corp certifications, certification isn’t required to be legally recognized as a B corp in states that offer this status.
A startup seeking investors.
C Corporation
A neighborhood cooperative grocery store.
Cooperative
Limited Liability Company (LLC)
An eco-friendly consulting firm wanting liability protection and flexible taxes
Combination
Business designations like S corp or nonprofit can indicate tax status, not just structure. An LLC can elect to be taxed as a C corp, S corp, or nonprofit, though these setups are uncommon and complex, so professional guidance is recommended. The key differences are in ownership limits, liability protection, and how the entity is taxed.
C Corporation
A C corporation (C corp) is a separate legal entity from its owners, meaning it can earn profits, be taxed, and be held legally responsible on its own. It provides the strongest personal liability protection, but it’s more expensive to form and requires strict recordkeeping and reporting. C corps pay corporate income tax, and in many cases, profits are taxed twice—once at the corporate level and again when shareholders receive dividends. A major advantage is that the corporation continues operating even if owners or shareholders change, giving it stability. C corps also excel at raising money because they can issue stock, which can help attract investors and employees. They’re often a good fit for medium- to high-risk companies, businesses seeking significant funding, or companies planning to go public or be sold.
Two siblings opening a small café together.
Partnership
Partnership
Partnerships are the simplest way for two or more people to co-own a business. There are two main types: Limited Partnerships (LP): One general partner has unlimited liability and manages the business, while the other partners have limited liability and limited control. Profits pass through to personal taxes, and the general partner pays self-employment tax. Limited Liability Partnerships (LLP): All partners receive limited liability, meaning they’re protected from debts or actions of the other partners. Partnerships work well for multi-owner businesses, professional groups, and teams wanting to test an idea before forming a more formal structure.
A boutique software startup with outside investors.
S Corporation
A nonprofit animal rescue.
Nonprofit Corporation
S Corporation
An S corporation (S corp) is a type of corporation that avoids double taxation by passing profits and certain losses directly to the owners’ personal tax returns instead of paying corporate income tax. States vary in how they tax S corps, and some don’t recognize S corp status at all. To become an S corp, a business must apply with the IRS and meet specific requirements, including having no more than 100 shareholders, all of whom must be U.S. citizens. S corps still follow the same strict operational and filing rules as C corps. Like C corps, S corps continue operating even if ownership changes. They’re a good option for businesses that qualify for S corp status and want the benefits of a corporation without double taxation.
Sole Proprietorship
A family bakery wanting simple taxes.
Sole Proprietorship
A sole proprietorship is the simplest business structure, giving one owner full control. The business isn’t a separate legal entity, so personal and business assets are legally the same—meaning the owner is personally responsible for all debts. It’s easy to start and allows the use of a trade name, but raising money can be difficult since you can’t sell stock and banks may be cautious. This structure works well for low-risk businesses or for testing an idea before forming a more formal business.
Cooperative
A nonprofit corporation is formed to serve public purposes such as charitable, educational, religious, literary, or scientific work. Because they benefit the public, nonprofits can apply for tax-exempt status, which allows them to avoid paying federal and state income taxes. To gain this exemption, nonprofits must apply to the IRS, separate from their state registration. They follow many of the same organizational rules as C corps but must meet strict regulations on how profits are used. They cannot distribute profits to members or support political campaigns. Nonprofits are often referred to as 501(c)(3) organizations, the IRS code section most commonly used to grant tax-exempt status.
Nonprofit Corporation
A nonprofit corporation is formed to serve public purposes such as charitable, educational, religious, literary, or scientific work. Because they benefit the public, nonprofits can apply for tax-exempt status, which allows them to avoid paying federal and state income taxes. To gain this exemption, nonprofits must apply to the IRS, separate from their state registration. They follow many of the same organizational rules as C corps but must meet strict regulations on how profits are used. They cannot distribute profits to members or support political campaigns. Nonprofits are often referred to as 501(c)(3) organizations, the IRS code section most commonly used to grant tax-exempt status.
Close Corporation
Close corporations resemble B corps but have a less traditional corporate structure. These shed many formalities that typically govern corporations and apply to smaller companies. State rules vary, but shares are usually barred from public trading. Close corporations can be run by a small group of shareholders without a board of directors.
A sustainable clothing brand prioritizing social impact.
B Corporation
Limited Liability Company (LLC)
A Limited Liability Company (LLC) combines features of both corporations and partnerships. It protects owners’ personal assets—like homes, cars, and savings—so they generally aren’t at risk if the business faces lawsuits or bankruptcy. Profits and losses pass through to the owners’ personal taxes, avoiding corporate taxation, but members are treated as self-employed and must pay self-employment taxes for Medicare and Social Security. In some states, an LLC may need to be dissolved and re-formed when ownership changes, unless an operating agreement outlines how to handle transfers. LLCs are a strong choice for medium- to high-risk businesses, owners with significant personal assets to protect, or those who prefer a lower tax rate than a corporation.
(2.1) Practice: Drag & Drop - Business Structures
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Transcript
Business Structures
Click the icons below to review the different types of business structures. Once you complete the review, click the arrow icon at the bottom of page to apply your knowledge to a real-world situation.
Sole Proprietorship
Partnership
Combination
Cooperative
Limited liability company (LLC)
Nonprofit Corporation
C Corporation
S Corporation
Close Corporation
B Corporation
Ready to apply your knowledge? Click on the arrow!
Business Structures
Read each scenario below, then drag it to the business structure that best fits. Once all scenarios are placed, check your answers by clicking the light bulb in each box. You can also click the plus sign ("+") to learn more about why each scenario matches its business structure.
A startup seeking investors.
A family bakery wanting simple taxes.
A sustainable clothing brand prioritizing social impact.
A nonprofit animal rescue.
Sole Proprietorship
C Corporation
B Corporation
Nonprofit Corporation
Continue to the next page
Business Structures
Read each scenario below, then drag it to the business structure that best fits. Once all scenarios are placed, check your answers by clicking the light bulb in each box. You can also click the plus sign ("+") to learn more about why each scenario matches its business structure.
A family-owned manufacturing company with a few close relatives as owners.
Two siblings opening a small café together.
A boutique software startup with outside investors.
A neighborhood cooperative grocery store.
An eco-friendly consulting firm wanting liability protection and flexible taxes
Partnership
S Corporation
Close Corporation
Cooperative
Limited Liability Company (LLC)
Continue to the next page
Great Work!
This learning activity is adapted from the "U.S. Small Business Association" and is licensed under Public Domain. All instructional content, including AI-assisted adaptations and custom interactive learning activities created on Genially is licensed by Saylor Academy under the 'Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-NC-SA 4.0) license. All Genially proprietary elements such as templates, themes, built-in assets, stock media, and other “Genially Content” remain subject to Genially's Terms of Service and are not covered by this Creative Commons license. These elements must remain embedded in the course and cannot be reused or redistributed independently.
A family-owned manufacturing company with a few close relatives as owners.
Close Corporation
B Corporation
A B corporation (benefit corporation) is a for-profit corporation recognized in many states that pursues both financial profit and a defined social or public benefit. It differs from a C corp in mission and accountability, but it is taxed the same way. Shareholders expect the company to meet its public-benefit goals, and some states require annual benefit reports to show the company’s positive impact. While companies may choose to get third-party B corp certifications, certification isn’t required to be legally recognized as a B corp in states that offer this status.
A startup seeking investors.
C Corporation
A neighborhood cooperative grocery store.
Cooperative
Limited Liability Company (LLC)
An eco-friendly consulting firm wanting liability protection and flexible taxes
Combination
Business designations like S corp or nonprofit can indicate tax status, not just structure. An LLC can elect to be taxed as a C corp, S corp, or nonprofit, though these setups are uncommon and complex, so professional guidance is recommended. The key differences are in ownership limits, liability protection, and how the entity is taxed.
C Corporation
A C corporation (C corp) is a separate legal entity from its owners, meaning it can earn profits, be taxed, and be held legally responsible on its own. It provides the strongest personal liability protection, but it’s more expensive to form and requires strict recordkeeping and reporting. C corps pay corporate income tax, and in many cases, profits are taxed twice—once at the corporate level and again when shareholders receive dividends. A major advantage is that the corporation continues operating even if owners or shareholders change, giving it stability. C corps also excel at raising money because they can issue stock, which can help attract investors and employees. They’re often a good fit for medium- to high-risk companies, businesses seeking significant funding, or companies planning to go public or be sold.
Two siblings opening a small café together.
Partnership
Partnership
Partnerships are the simplest way for two or more people to co-own a business. There are two main types: Limited Partnerships (LP): One general partner has unlimited liability and manages the business, while the other partners have limited liability and limited control. Profits pass through to personal taxes, and the general partner pays self-employment tax. Limited Liability Partnerships (LLP): All partners receive limited liability, meaning they’re protected from debts or actions of the other partners. Partnerships work well for multi-owner businesses, professional groups, and teams wanting to test an idea before forming a more formal structure.
A boutique software startup with outside investors.
S Corporation
A nonprofit animal rescue.
Nonprofit Corporation
S Corporation
An S corporation (S corp) is a type of corporation that avoids double taxation by passing profits and certain losses directly to the owners’ personal tax returns instead of paying corporate income tax. States vary in how they tax S corps, and some don’t recognize S corp status at all. To become an S corp, a business must apply with the IRS and meet specific requirements, including having no more than 100 shareholders, all of whom must be U.S. citizens. S corps still follow the same strict operational and filing rules as C corps. Like C corps, S corps continue operating even if ownership changes. They’re a good option for businesses that qualify for S corp status and want the benefits of a corporation without double taxation.
Sole Proprietorship
A family bakery wanting simple taxes.
Sole Proprietorship
A sole proprietorship is the simplest business structure, giving one owner full control. The business isn’t a separate legal entity, so personal and business assets are legally the same—meaning the owner is personally responsible for all debts. It’s easy to start and allows the use of a trade name, but raising money can be difficult since you can’t sell stock and banks may be cautious. This structure works well for low-risk businesses or for testing an idea before forming a more formal business.
Cooperative
A nonprofit corporation is formed to serve public purposes such as charitable, educational, religious, literary, or scientific work. Because they benefit the public, nonprofits can apply for tax-exempt status, which allows them to avoid paying federal and state income taxes. To gain this exemption, nonprofits must apply to the IRS, separate from their state registration. They follow many of the same organizational rules as C corps but must meet strict regulations on how profits are used. They cannot distribute profits to members or support political campaigns. Nonprofits are often referred to as 501(c)(3) organizations, the IRS code section most commonly used to grant tax-exempt status.
Nonprofit Corporation
A nonprofit corporation is formed to serve public purposes such as charitable, educational, religious, literary, or scientific work. Because they benefit the public, nonprofits can apply for tax-exempt status, which allows them to avoid paying federal and state income taxes. To gain this exemption, nonprofits must apply to the IRS, separate from their state registration. They follow many of the same organizational rules as C corps but must meet strict regulations on how profits are used. They cannot distribute profits to members or support political campaigns. Nonprofits are often referred to as 501(c)(3) organizations, the IRS code section most commonly used to grant tax-exempt status.
Close Corporation
Close corporations resemble B corps but have a less traditional corporate structure. These shed many formalities that typically govern corporations and apply to smaller companies. State rules vary, but shares are usually barred from public trading. Close corporations can be run by a small group of shareholders without a board of directors.
A sustainable clothing brand prioritizing social impact.
B Corporation
Limited Liability Company (LLC)
A Limited Liability Company (LLC) combines features of both corporations and partnerships. It protects owners’ personal assets—like homes, cars, and savings—so they generally aren’t at risk if the business faces lawsuits or bankruptcy. Profits and losses pass through to the owners’ personal taxes, avoiding corporate taxation, but members are treated as self-employed and must pay self-employment taxes for Medicare and Social Security. In some states, an LLC may need to be dissolved and re-formed when ownership changes, unless an operating agreement outlines how to handle transfers. LLCs are a strong choice for medium- to high-risk businesses, owners with significant personal assets to protect, or those who prefer a lower tax rate than a corporation.