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1. Sole Proprietorships When an individual engages in business as the sole owner, the business does not exist apart from the owner. Business debts are the proprietor's personal debts and personal assets are subject to claims of business creditors. No formal paperwork involved in creating the proprietorship, but businesses using a trade name must register with state and/or local authorities. Income and expenses will appear on the proprietor's tax return. At death, the executor may liquidate the business, sell it, or continue it under the terms of the deceased's will.

2. Partnerships These are formed by oral or written agreement between two or more individuals. (A written agreement is preferable, in order to handle any future disagreements). Each partner has unlimited liability for the business debts. The partnership files an information tax return, but the income is taxed to the individual partners. At transfer of a partnership interest, or at death, the partnership is dissolved unless there is agreement to the contrary.

3. Corporations Formed under the Articles of Incorporation filed with the State, which issues a Charter. The corporation is a legal entity, separate and distinct from those who comprise it. A shareholder's liability is limited to the assets of the corporation, but not the shareholder's personal assets. The corporation files its own income tax return. "Reasonable" salaries are deductible by the corporation and are taxable to the employee, including employees who are shareholders. Corporate shares of stock may be transferred to others during life or after death (if there is a buy-sell agreement, it will control disposition of shares). The corporation does not dissolve at the death of a shareholder, and thus may be said to have "perpetual life" under the terms of the Charter.

A type of corporation is the Subchapter S Corporation. This is one that has elected to have its income taxed to the individual shareholders rather than to the corporation. In this respect it is very similar to a partnership in that it avoids the double taxation which may occur if a regular C corporation pays dividends to its stockholders. Several conditions must exist for a Subchapter S status to be effective; it must be a domestic corporation; it must not have more than 35 shareholders who must be individuals, estates or certain trusts (but not partnerships or other corporations); it may have only one class of stock. Stockholders must consent to the election of Subchapter S status. An attorney and accountant should be consulted to determine the feasibility of electing Subchapter S status.