Sole Proprietorship: This type of organization is the simplest form of business structure, or more appropriately, the lack of business structure. In a Sole-Proprietorship, the owner is personally liable for all debts incurred by the business and is likewise entitled to all profits derived from the business. There are no formalities to creating a sole-proprietorship other than commencing business; however it is usually wise to file a fictitious name with the Secretary of State. A separate income tax filing is not required as all income (loss) is reported on Schedule C of the owner’s 1040 form. The income generated by the sole proprietorship is subject to self-employment taxes.

General Partnership: This type of organization requires two or more people, hence, a partnership. Each partner is referred to as a “general” partner. A general partner is liable for all debt incurred by the partnership and likewise is entitled to receive all income generated by the partnership. A partnership files an annual tax return, form 1065, and the partners each receive Schedule K-1's which they must report on their tax returns. A partnership has a single level of tax which means that the partnership does not pay tax; it merely passes all income to the partners. A partnership is a very flexible form of business ownership although the liability incurred by the partners makes it an unattractive choice of entity for many enterprises.