Choosing a Business Structure

Starting a business is similar to building an actual building. Just like a real building, the structure will impact the purpose. How well your business structure fits your goals matters. It affects ownership and transfer, taxes, and the ability to get credit. The form guides the direction your business will develop.

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The most common structures are:

• Sole Proprietor

  This type is based on personal ownership. Property and liabilities are held in someone's name. This can be either an individual (normally) or a married couple. Home businesses often use this type. It is simple and cheap. Business taxes are filed as personal income. Liability is also personal, which is a disadvantage. In most areas, starting a sole proprietorship is as easy as filing a DBA (Doing Business As). Some locations (and types of businesses) may require other licensing. Fees are minimal. Required records are similar to personal tax records.

  
  

• Partnership

  The most basic mirrors a sole proprietorship. The key document is the partnership agreement. This spells out the division of ownership. In a General Partnership, the responsibilities are shared across partners. Management duties and profits are shared as well. There are no direct taxes on a partnership; taxes are handled as personal taxes on each partner. There are other, special types of partnerships. These are more like corporations. Limited Liability Partnerships, Professional Partnerships and Limited Partnerships give more flexibility and alter liability.

  
  

• Corporation (C Corp)

  This is a more complex legal structure. The key difference is that a corporation is a legal entity separate from its owners. Ownership is through stock in the company. Stock may be privately held or public. The ability to offer stock for sale is an advantage. It allows for financing outside of direct loans. Another advantage is the protection a corporation offers by limiting liability. Startup costs are higher with a corporation. There are more formalities and regulation issues. Taxes are also business based instead of individual.

  
  

• Chapter S Corporation

  This subtype of corporation has one advantage over a C Corp. Taxes are paid like they are for partnerships. IRS requirements must be met, but the S Corp taxing method is a benefit. Other advantages of a C Corp are retained.

  
  

• Limited Liability Company (LLC)

  This form combines the advantages of a corporation and those of a partnership or sole proprietorship. It doesn’t require the formal structure of a ‘real’ corporation, but still limits owner liability. Taxes are done as they are for a partnership (or sole proprietorship). One disadvantage is the inability to issue stock to raise capital.

  
  

• Non Profit

  This is a type of corporation dedicated to some civic, religious, educational, or charitable goal. They are tax exempt. A board of directors (or trustees) is required. One particularity of non profits is that they cannot be sold, but their assets must be transferred to another non profit if they are dissolved.

  
  

• Professional Service Corporation

  This is available to some professions, depending on the state. It is a limited liability type of corporation where all the shareholders also hold a professional license. Doctors, lawyers, accountants and other professionals might find this an attractive choice because it limits their personal liability.

  
  

Start a Business

• Choosing a Business Structure
  • Sole Proprietor
  • Partnership
  • Corporation
  • S Corporation
  • Limited Liability Company
  • Non Profit
  • Professional Corporation
  • Business Structures Chart
• FREE Corporate Name Search
• Register a Business Name
• Business Licenses and Permits
• Obtain Federal Tax ID
• Register With State Revenue
• Starting a Business Checklist
• Free DBA Guide