Business Structures – Different Types and What to Know About Them - LLC.org

This guide will help you understand what business structures are available, what they each mean, and which may be the best for your business.
One of the first decisions a small business owner will make is what organizational structure to register their business under. While this may seem like a formality for government paperwork, each type of structure comes with many implications, from tax rates to liability implications.
Understanding how each business structure works and what it could mean for your business is critical before you register with the state.
A business structure refers to the type of legal entity your business is registered with the government under. The form of business you choose will determine the type of income taxes you file, personal liability, and other reporting and licensure requirements that may come up.
The available business structures are:
You may also hear about S Corps, B Corps, and Non-profits when referring to business structures, though they are not actual options for registering with the government.
When selecting a business structure, there are a number of things to consider. The question of whether you will be the only owner or work in partnership with others will automatically eliminate certain options. From there, you should consider the legal liability and tax structure to determine what makes the most sense for you from a personal and business perspective.
You may also want to consider the costs associated with each structure and other reporting requirements to ensure you can meet all obligations. While you can switch structures down the line, keep in mind the flexibility you may need and what the ultimate goals you have for your business may be.
Once you have considered these factors, you can check your state’s website to ensure you meet any additional requirements and have chosen the right structure for your business.
Each form of business has unique elements and use cases where it will be the best option for a business. There are also varying processes for forming and maintaining each type of business.
An LLC, or limited liability company, is an organizational structure that incorporates elements of corporations, general partnerships, and sole proprietorship. The owner of an LLC is generally known as a member and has protection from liability and other obligations, like debts and lawsuits, similar to those offered to a corporation.
An LLC can have one or multiple owners who are offered this protection. However, the protection is not as extensive as some industries require, so things like banks and insurance companies cannot file as an LLC.
Those looking to start a business who do not want to take on personal risk often choose an LLC. The maintenance of an LLC is less intensive than something like a corporation with less complexities, but there is still protection from liability.
In order to form an LLC, you must register the business with the state where you will operate. This involves ensuring your business name is unique, assigning a registered agent, and providing basic information to the issuing department.
Sole proprietorship is the simplest business structure available. In these entities, a single owner has complete control of the business and operates as a single unit for the purposes of tax and liabilities. There is no liability protection for a sole proprietor and profits and losses made by the entrepreneur are included as a part of their personal income taxes.
Those looking to quickly start a new business without a lot of paperwork may choose a sole proprietorship. Anyone comfortable taking on the additional risk of their business or who does not feel they need protection may also choose this structure.
There is no formal process to register or form a sole proprietorship. Simply operating a business on your own qualifies you as a sole prop. However, many people choose to operate the business under a name other than their own, which can require filing a DBA or fictitious name form with the state.
A partnership is formed when two or more people join together to run a business, with each person having an equal share in profits and losses. Each partner will report their income from the business as a part of their personal tax return and take on personal liability for debts and obligations of the company.
Partnerships are simple to start and maintain, with less formalities than other business organizations. Those who want a quick and easy start to their business may opt for a partnership. Because it does not require formal agreements, people who want to go into business without binding themselves to an agreement may also prefer this structure.
General partners must be registered with the state, usually through the Secretary of State or another issuing agency. While it is not required to provide a partnership agreement, it can be wise to have all terms decided upon prior to this registration.
The most complex business structure is a corporation. It’s a legal entity entirely separate and independent from the people who own and run the corporation, including shareholders. The corporation can enter contracts independently of these individuals and has separate financial obligations, including taxes. Ownership of a corporation is determined by issuing shares of stock.
Corporations are generally best for larger, established companies with multiple employees. Some smaller organizations will choose to be incorporated because their industry exposes them to sizable liability, but this is rare.
Corporations face double taxation, which means the company pays a corporate tax and anyone who receives income from the company is also taxed.
Like other structures, a corporation must be registered through the state via Articles of Incorporation. This process also requires the preparation of corporate bylaws and the creation of set operations of the business. A corporation must hold regular board meetings, issue stock, provide decision-making information to st